1. Policy for Providing Services Outside of the CityClity of Kalispell
Pos_ Office Box 1997 - Kalispell. Montana 59903- 997 - Teiep one f405j758-7700 Fax (406)758--7758
REPORT TO: Mayor Pamela B. Kennedy and City Council
FROM; Frank Garner, Interim City Manager
Tom Jentz, Tri-City Planning Director
Jim Hansz, Public Works Director
Amy Robertson, Finance Director
Charles Harball, City Attorney
SUBJECT: Policy for the Provision of Services Outside of the City Boundaries
MEETING DATE: October 25, 2004
BACKGROUND: Recent development pressures in the Flathead Valley have created an
increasing demand for municipal services in unincorporated areas. The City Council has
received a number of requests to provide sewer service to these areas. This increasing demand
makes it apparent that it is necessary to create an overall policy that directs the extension of
services to these areas. The City Council has expressed a desire to review information
concerning planning, utility service boundaries, legal issues relating to utilities, and billing
concerns relating to the extension of these services. The public works director, planning director,
finance director and city attorney have addressed these four concerns below.
Public Works Issues
In the year 2000, the City began an extensive project to define its utility needs for the next
20 years. This effort involved many steps and included as a first step identification of the area in
which utility service might reasonably be expected to be provided. Since the potential service
area was not specified in advance, a larger "study area" covering several miles outside the City
was identified with the intent of narrowing the focus to a smaller area of potential service based
on analysis of currently available data and some reasonable projections of growth and demand.
In order to determine this potential service area many factors were considered. These factors
included the areas presently served, and historical, current and projected zoning and growth in
and around the City. It included residential, commercial and industrial components as well as
their respective residential and employment population estimates. All this analysis was based on
OS Census tract data, and all these factors were coordinated to the information baseline
contained in the Kalispell general plan in effect in 2000.
The result of analyzing all of these factors was identification of a potential utility service
area within which, over the next 20 years, it would be reasonable to expect requests for utility
service. The recommended potential service area is delineated on Figure 2.4 of the Kalispell
Facility Plan, dated July 2002. Political issues related to potential utility service were not
considered in the estimation of the service area boundary. No specification of method, whether
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via extension of the Kalispell system, or by other means, such as the current arrangement with
Evergreen, or variations thereof, was intended or implied in recommending this 20 year service
area. Finally, there was no intent in the recommendation that the service area so delineated
would be considered as a fixed or otherwise limiting boundary. It was assumed that as area
growth progressed there would be periodic reexaminations and adjustments of the service area to
reflect changed conditions.
The potential service area and all the demographic and physical data within that area and
upon which the analysis was based helped to establish quantitative estimates of facility needs for
major components of the City's utility systems. Again, it was assumed that growth in demand
was anticipated to occur over a 20 year period, but it most likely would not be uniform across the
area. The growth could occur anywhere within the service area. Because of this it was also
assumed that size or capacity of key components would be initially estimated and later adjusted if
necessary, either for size or the timing of their expansion, to accommodate the actual impacts of
growth in the community. With respect to the WWTP, an estimated doubling of its capacity
could be reasonably anticipated in 20 years, or much sooner as actual events might dictate.
Further, as growth in an area occurs, it was anticipated that adjustments of the service area
boundary would be needed to accommodate further growth in adjacent areas lying beyond the
service area originally delineated at the beginning of the planning process.
Adjustment of both the service area, and the sizes, locations and timing of facility
improvements was anticipated and expected. to be necessary in order to meet utility service needs
of the Kalispell community over the next 20 years.
Land Use Issues
The Kalispell Planning Board has already begun the process of updating the Growth
Policy as part of its work program. The primary focus of this update is to review the map and
make adjustments for the amount of growth that has occurred in the two years since adoption.
Any plan amendment could be rolled into this process as it addresses a significant amount of the
area already under review by the planning board.
The process involved in expanding the Growth Policy Planning boundaries to incorporate a
growth policy amendment would be as follows:
1) The Planning Board drafts suggested boundaries for the expanded Growth Policy
planning jurisdiction.
2) The Planning Board proposes suggested land uses in the expanded area.
3) The Planning Board holds a hearing on the expanded Growth Policy boundary and
proposed land uses, seeks input from property owners in area, county planning board, etc.
4) The recommendation is forwarded to the Council.
5) Council acts on the recommendation and adopts the revised Growth Policy by resolution.
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6) Time Frame to adoption - 120 days.
The Planning Board and ultimately the City Council would need to address the following
+
issues in regard to the Two Rivers area.,
1. Expanding the boundaries of the Planning Jurisdiction.
a. The current Growth Policy Planning Boundary on the north side incorporates
approximately %Z of the Two Rivers Development area.
b. The expanded Growth Policy Planning Boundary should mirror the revised Utility
Services Boundary.
c. A decision should be made how far east the boundary should extend, i.e. to the
Flathead River, to US 2, or to the Stillwater River. Currently the boundary extends all
the way over to the Flathead River encompassing all of the Evergreen RSID and
approximately one mile north of Reserve.
Determining the appropriate land use designations within the existing Planning
Jurisdiction (review existing map) and the appropriate land use designations in the
expanded area of the Growth Policy Planning Jurisdiction. Three scenarios are offered:
a. The City could adopt the land use designations which are ultimately approved by the
county. In this scenario, there would be no conflict between city and county plans as
development occurred outside the city limits because the city would be following the
lead of the county.
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area should grow and develop.
i. In this scenario the city would review recent land use decisions such as the
Wolford Mall and the accelerated demand for residential development on the
fringes of the city plus an analysis of the proposals submitted as part of a Two
Rivers Plan Amendment.
1. The residential amendments would be easily accommodated into the
growth plan map, as typically the city would anticipate similar or even
denser residential development as urban services become available.
2. The amount of commercial land appears to be somewhat overstated.
When including the Bucky Wolford Mall proposal already approved by
the county at 400 acres, there is approximately 600 acres of
commercially designated land immediately north of Reserve. Another
way of explaining this is 50% of the land between the Whitefish and
Stillwater Rivers lying within a mile north of Reserve Drive is
proposed for commercial development. The county planning office
did point out that some of the Semi -Tool property may have been
inappropriately designated and may change in the near future through
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the county process. One way of accommodating much of this would
be to designate such areas as "Urban Mixed Use". This designation
anticipates a mix or broad array of office, residential, limited
commercial and industrial uses. This would allow flexibility to the
developer and an open door for creative future development.
c. As a third alternative, the city planning board could work with the county planning
board to draft land use designations that would be mutually agreed upon by the city
and county (ultimately the City Council and County Commissioners).
Where City of Kalispell utility lines are extended to serve the project, the
applicants would request annexation or an annexation district (i.e. north on
Whitefish Stage). The applicants would comply with the city growth policy
and by annexation, annexation district or developer's agreement would build
to city standards.
ii. Where annexation is not immediately imminent (i.e. lines extended through
the Evergreen Sewer District) the developer would:
1. Comply with the Flathead County Growth Policy designation (which
should mirror Kalispell's),
2. Submit a waiver to protest annexation,
3. Be reviewed by the county, and
4. Be developed to a set of urban standards based on density of the
project. Urban standards, as developed by the city and adopted by the
county, would need to be refined based on density of the project. This
then would allow the city to annex the property at a future time.
iii. Where annexation is not anticipated in the near or far future or where it is not
anticipated to be in the best interest of the city, the Council could designate on
the planning jurisdiction map as a policy a boundary which shows that the city
is not interested in annexation or the extension of services beyond a certain
geographic point.
Finance Department Issues
Attached is a spreadsheet that breaks down our sewer rate ($3.62 per 1,000) between
sanitary and WWTP to demonstrate the portion of the rate related to WWTP only. Included in
our rate are the costs associated with M & O and the required coverage for the bonds and the
equipment replacement account. These expense numbers have been reduced for the amount that
the Evergreen district pays to arrive at the amount City of Kalispell user's pay. The rate is then
prorated, 66% of the rate applies to the WWTP. Since these new customers are outside the
Evergreen district they will use City capacity and will pay the same rate as Kalispell users. if
they are not annexed the 25% surcharge applies. This rate would be $2.99 per thousand.
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Initially I expected that these customers would be Kalispell customers and we would bill
them and credit Evergreen for transmission. However, upon further thought, these "Out of
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would have no reason at all to come to City hall. No one signs up for treatment only services. It
would be difficult to collect or charge a delinquent bill to the tax notice when we won't have a
signature signing up for service. We won't know about changes to ownership or tenants. We
cannot shut off for non-payment; Evergreen won't shut off now for non payment. Maybe
Council should consider a new rate (like a storm sewer assessment) which would be annual flat
rate for service charged to the tax notice.
Other considerations; Evergreen bills monthly, we bill bi-monthly. We would need
readings for these properties to do our own billing. Maybe Evergreen would bill our rate and pay
us? That would be the most logical method for the homeowners.
FYI — Evergreen pays the City $1.37 per thousand plus $9,715 for debt. We also bill a
surcharge depending on the sewage strength for BOD's and TSS measured at the plant. It will be
difficult to determine if those surcharges were from users outside the district but connected to the
district. I have no information on Meadow Manor and they are currently being treated as though.
they are in the Evergreen district. Therefore, those users help the district pay their debt and not
the City's portion. Technically, they should be paying $2.99 per thousand.
Legal Issues
State law authorizes the City of Kalispell to extend its municipal sewer services outside
of the city limits.
7-13-4312. Authorization to furnish water and sewer services to persons located outside
municipality. The city council of any city within Montana that owns and operates a municipal
water system and/or a municipal sewer system to furnish water and sewer services to the
inhabitants of such city as a public utility shall, in addition to all other powers, have power to
furnish water from such water system and sewage services from such sewer system to the
inhabitants or to any person, factory, industry, or producer of farm or other products located
outside of the corporate limits of such city at reasonable ratesfiled by the city or town council and
approved, when otherwise required by statute, by the public service commission. Such city council
is further empowered to make collections for furnishing water and sewer services in the same
manner as collections are made within the corporate limits.
Certainly, this authorization to provide extraterritorial service is discretionary with the
City and the City has been providing this extraterritorial service ever since the time it entered into
the interlocal agreement with the Evergreen Sewer District. As Council considers its policy in
this regard and requests for services come in from landowners directly to the north of the City as
well as those areas on the perimeter of the Evergreen Sewer District it may serve the Council
well to consider the differences as well as the similarities of those two situations.
In 1970 a case styled The City ofPolson v. P.S.C., 155 Mont. 464, came down from our
Montana Supreme Court. Since that time, some of our statutory law has changed and the Public
Service Commission no longer has the same oversight of municipal sewer. However, the
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primary legal theory and policy behind public utilities remains the same and much of the holding
of that case should be given due consideration.
In that case, Polson maintained an old municipal water line south outside of its municipal
boundaries. A new business, which required a water hookup for fire suppression purposes, was
constructed in the immediate area of the water line. Polson denied the request for service for the
reason that the age and condition of the line was deemed inadequate for the requested purposes.
The Montana Supreme Court determined that Polson could not deny the service, holding:
"The responsibility of a public utility to furnish reasonably adequate and nondiscriminatory
service to all customers within its service area is expressly set forth in sections 70-103, 70-105,
70-121, 70-127, 70-128, R.C.M. 1947." The court went on to state: "Even assuming arguendo
that the Hell Roaring Creek main is in poor condition and there is a good chance it will be
damaged when the tap is made, this is not a sufficient basis for refusal of the South Shore Inn's
application. It is the undeniable duty of a public utility to furnish adequate service within its
service area.
The theme that runs through the Polson case is that a public utility, as a matter of public
policy, carries the obligation to those properties that it can reasonably serve (within its capacity),
within the service area it creates (within that reasonable distance), to provide an adequate service
in a nondiscriminatory manner.
Running parallel to this theme is the structure of the state environmental quality laws,
which make an effort to place development on public sewer treatment systems. MCA 76-4-104
gives the state Department of Environmental Quality rulemaking authority and certain oversight
of subdivision approvals to ensure uniform application of environmental protection measures.
For instance, ARM 17-36-328 requires:
"A proposed subdivision must be connected to a public water supply or wastewater
system if any boundary of the subdivision is within 500 feet of the public system and the public
system meets the requirements of (2)(a) and (b). The department may grant a waiver, pursuant to
A M ] 7.36.601, of the requirement to connect to a public system if the applicant demonstrates
that connection to the public system is physically or economically impractical, or that easements
can not be obtained. Far purposes of this rule, a connection is economically practical if the cost
of connection is less than or equal to three times the cost of installation of an approvable system
on the site. "
These two themes seem to spell out a legally supported public policy that sets forth the
following principles:
1. When a municipality extends a utility line, such as sewer, into an area, even
though that area is outside of the municipal jurisdiction, it must be prepared to
adequately serve that area with the utility service.
2. Once a municipality has extended a sewer line into an area, the policy of the state
will be to encourage property owners developing their properties to utilize the
municipal sewer services within that area.
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3. When a municipality extends a utility line, such as sewer, into an area and
represents that area to be a service area, it may not arbitrarily determine which
properties may or may not utilize its services.
Now, how do these broad statements apply to Council's determination of its sewer
extension policy? It may be helpful at this point to distinguish between the model of extending
sewer lines onto the existing Evergreen Sewer conveyance system and the model of the City
extending outward from its own conveyance lines.
In considering the Evergreen model, it seems that Council has expressed some desire to
limit, or at least control, the amount of growth that develops as a scion of the Evergreen
conveyance system. Under our previous practice of generally denying the connection to
Evergreen unless the property was contiguous to the City and the owner agreed to annex, little or
no expansion of the Evergreen Sewer System occurred. Under this scenario, Evergreen Sewer
District could have agreed, with the City's permission, to serve properties outside of its RSID on
its own contractual sewer treatment capacity and yet limit the number of those sewer connections
for the reason that it has a legal responsibility to preserve a portion of its contractual sewer
treatment capacity for those properties within its RSID that have not yet connected to its
conveyance system. Although such action may appear on its face to be discriminatory, there is a
rational contractual basis for the limitation. However, when the partnership of the City and the
Evergreen Sewer District agree to extend lines outside of Evergreen's RSID on that portion of
the treatment plant capacity that is not Evergreen's, the same rationale for limiting the
connections is no Ionger available. In that case, when a landowner is within the service area,
which is .now extended outside of the City as well as the Evergreen RSID, and arguably anywhere
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discriminate between landowners?
For this reason, when the City agreed to allow the Kelsey Subdivision to connect to the
Evergreen Sewer System using the treatment plant capacity not contracted to Evergreen, it made
the distinction that such practice would be limited to those properties, like the Kelsey
Subdivision, that are partially within the Evergreen District. It cannot therefore be argued that
the City and Evergreen Sewer are holding their systems out as a sewer utility in this area.
Turning now to the model that extends sewer lines outward from existing City
conveyance lines, the legal analysis becomes less complex. Simply put, before Council
determines to run extraterritorial utility lines it should ask the following questions:
Can the City utility adequately serve this area?
2. Does the City want to create this utility service area because
a. it makes good economic sense and/or
b. it makes good municipal sense`?
Unless the City can answer "yes" to these questions, there will likely be legal problems
down the road for the City.
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RECOMMENDATION: The Council should formulate a policy relative to the extension of
sewer services outside of the City's boundaries.
ALTERNATIVES: As suggested by Council.
Respectively submitted,
Frank Garner
Interim. City Manager
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Breakdown of Sewer rate into Sanitary and WWTP - in City and Out of City
BUDGET 2005
34% Sanitary
Debt Service 1.25% $ 316,999
M & 0I replacement. $ 584,405
subtotal $ 901,404
66% WWTP
Debt Service 1.25% $ 508,806 $ 461,166
M & O $ 1,028,732
Replacement aect $ 258,214
$ 1,748,112
Grand total $ 2,649,515
2005 rate
In City Out of City
% $ 3.62 $ 4.53
0.1196 0.43
0.2206 0.80
L 23 $ 1.54
0.1741
0.3883
0.0975
1.00
0.63
1.41.
0.35
2.39 $ 299
3.62 4.53
WWTP Expense Assumptions. debt service coverage requires a rate to generate 125%. Debt service
amount was then reduced by the 22% paid by Evergreen $1 16,580. Wwtp debt service was
further reduced by $58,262 provided from plant investment fees.
M & 0 is also reduced for the amount paid by Evergreen for M & 0 $165.180 and the Replacement
contribution of $52.080.
Sanitary Expense Assumptions: debt service is reduced by $24,970 from plant investment fees.
Calculation does not include billing costs.
By making these adjustments we come back to the amount of expense to be covered by our rate payers