12/13/04 Hansz/Developer's Extension AgreementCity of Kalispell Public Works Department
Post Office Box 1997, Kalispell.. Montana 59903-1997 - Telephone (406)758-7720, Fax (406)758-7831
REPORT TO: Mayor and City Council
FROM: James C. Hansz, P.E., Director of Public Works
SUBJECT: Developer's Extension Agreement — West View Estates
MEETING DATE: December 13,2004
Several months ago City Council revised its extension of services policy to provide an alternate
formula for determining costs eligible for reimbursement to developers. The intent of &is change was to
stimulate the extension of utilities without significant investment of limited City fimds. The change
involves calculation of the eligible cost on the basis of capacity rather than differences on size of facility.
Mark Owen, dba Owl Corporation, developer of West View Estates has been first to express
interest in taking advantage of the changed method. We have been working with Owl Corporation and the
engineers for several months to develop a satisfactory agreement to extend utilities to the West View
project through Section 36, where they presently terminate for the Lowes (Spring Prairie) development.
The draft agreement is attached for your information.
The draft is comprised of five parts: 1) a basic latecomers agreement, 2) Exhibit A, a plan of the
proposed utility extensions through Section 36 to their termination, 3) Exhibit B, a break down of total
project costs, 4) Exhibit C, a legal description of the West View Estates property where these utilities will
terminate, and 5), Exhibit D, the detailed break down of cost recovery, expressed in dollars per equivalent
dwelling units, $/EDU, for water and sewer, which must be collected from latecomers and reimbursed to
Owl Corporation.
Owl Corporation has asked to review this with City Council to ensure its acceptability before it is
placed before Council for approval on 20 December. Once the agreement is approved he will proceed
with the project. In addition and as known by Council, these facilities extend through and will serve
potential development in Section 36, an area being developed by DNRC according to an approved
neighborhood plan. This development is proceeding on a schedule of 20 years, of which 17 years remain
for its completion. As a result, Owl Corporation has also asked for consideration of an extended term for
this agreement to match the current timetable for development of Section 36. The rationale for this
request has been best expressed by the developer's engineer:
"In orderfor any late comer agreement to be viable, the developer needs to have
reasonable assurance that a substantial portion ofthe cost of the utility extension will indeed be
December 13, 2004 West View Estates Extension Agreementc.doc
reimbursed. The land through which the utilities will be extended is owned by the State of
Montana and controlled by the DNRC As a result, development in this section (and thus the
potentialfor reimbursement to Owl Corporation) is controlled by the DNRC and their 2001
Neighborhood Plan. The 2001 Neighborhood Plan developed a tweno, (20) year growth scenario
for the north hal(ofSection 36 As a result, growth in this area is not controlled by the
development market (Y. e. the economy), but instead by the plan laid out by the DNRC taking into
consideration items such as the new high school and the highway bypass. For example, the
DNRC may not allow any more development to occur in the north ha�fofSection 36 until the
bypass location through Section 36isfinalized By extending the latecomers agreement to 17
years, the term of the late comers agreement willfollow the same time line as the Section 36 2001
Neighborhood Plan. "
The request made by Owl Corporation reflects a deviation from the City Council's recently
adopted extension of services policy which set a maximum ten year duration for these agreements.
However, after considering the Developer's argument made in favor of this request, staff believes it is
reasonable for Council to consider the request to better ensure success of the effort.
December 13, 2004 West View Estates Extension Agreemente.doc
AGREEMENT, made this _ day of , 2004, between Owl Corporation, a
Montana corporation ("Developer") and the City of Kalispell, situated in Flathead County,
Montana ("City").
WITNESSETH:
A. The City owns and operates municipal water and sewer systems within and
adjacent to its City limits; and
B. Developer has constructed, under agreement with the City, extensions to said
water and sewer systems (collectively the "Extensions"), as more particularly depicted on
Exhibit "A," attached hereto and incorporated herein by this reference, which Extensions are
capable of serving parcels now owned by the Developer and others; and
C. The Extensions are located within the City's existing municipal water and sewer
service area, and shall be subject to the City's public works standards for performance; and
D. The total project cost for design and construction of the Extensions amounted to
$968,537 as more specifically itemized on Exhibit "B," attached hereto and incorporated herein
by this reference; and
E. The City and Developer desire and intend by this Agreement to provide for
collection of the fair pro rata share of the total project costs of the Extension from the owners of
the properties which benefit from the Extensions, but who did not contribute to the original cost
thereof.
F. The City has determined and Developer has agreed that the fair pro rata share of
the total project costs of the Extensions, to be collected from the owners of properties who tap
onto, connect to or use the Extensions, shall be based upon the equivalent dwelling units
("EDU") associated with the expected use of the subject properties at the rates set forth in
Section 5 below.
NOW, THEREFORE, in consideration of the mutual covenants and agreements hereafter
set forth, it is agreed by and between the parties hereto as follows:
1. All of the recitals set forth above are adopted by the parties as material elements
of this Agreement.
2. Developer shall transfer title, free and clear of all encumbrances, to the
LATECOMERs AGREEMENT P. I
Extensions, by a bill of sale to be executed and delivered by Developer to the City. Developer
shall assign easement deed for utilities from State of Montana to Developer (hereinafter referred
to as easement), to be executed and delivered by Developer to the City. In the event that any lien
or other claim against the Extensions are asserted after conveyance to the City, Developer shall
defend and save harmless the City from loss on account thereof In the event the City shall be
put to any expense in defense of such claim or otherwise, then the City shall have a lien against
any funds then or thereafter deposited with it pursuant to this Agreement.
3. Developer warrants that it is the owner in title absolute of the Extensions, that it
has neither perinitted nor suffered any person or other entity to tap onto, connect to or use the
Extensions prior to the date of this Agreement, except the real property owned by Developer as
identified on Exhibit "C," and as described in Section 8 below.
4. The City agrees to accept the Extensions for ownership and maintenance as part
of its facility by acceptance of the bill of sale and assigninent of easement if the utilities are
constructed in accordance to City of Kalispell Standards for Design and Construction, April
1996. Further, the City agrees to collect from owners of properties who have not heretofore
contributed to the project costs of the Extensions, and who subsequently tap onto, connect to or
use the Extensions, a fee equal to the fair pro rata share of the total project costs as set forth in
Section 5 below ("Assessment Fees"). Such Assessment Fees shall not be collected by the City
with respect to the property by the Developer, as more particularly set forth on Exhibit "C," and
as described in Section 8 below.
5. The total project costs for the Extensions including costs eligible for
reimbursement under this Agreement are as itemized on Exhibit "B." Said eligible portion of the
total project costs includes costs for design engineering, surveying, construction, construction
inspection and construction contract administration incurred and paid by Developer. The
Assessment Fees for each of the properties who subsequently tap onto, connect to or use the
Extensions shall be based upon the estimated equivalent dwelling units ("EDUs") associated
with such properties in the amounts set forth in Section 5(a) and (b). The amounts set forth in
Sections 5(a) and (b) are based upon total capacity of 2,467 EDUs for the municipal water
system extension and 1,136 EDUs for the sewer system extension, with 127 EDUs for the
municipal water system extension and 127 EDUs for the sewer system extension being allocated
to the property owned by Developer as described on Exhibit "C," for which no Assessment Fee
shall be charged and for which Developer shall not be entitled to reimbursement pursuant to this
Agreement.
(a) The Assessment Fee for owners of properties who subsequently tap onto,
connect to or use the municipal water system extension shall be $173.09 per EDU,
adjusted annually in accordance with Section 5(c) below. The maximum number of
EDUs for which Developer shall be entitled to reimbursement for the municipal water
system extension shall be 2,340 EDUs.
(b) The Assessment Fee for owners of properties who subsequently tap onto,
connect to or use the sewer system extension shall be $476-69 per EDU, adjusted
annually in accordance with Section 5(c) below. The maximum number of EDUs for
LATECOMERs AGREEMENT P. 2
which Developer shall be entitled to reimbursement for the sewer system extension shall
be 1,009 EDUs.
(c) The per EDU Assessment Fees set forth in Sections 5(a) and (b) above
shall be increased annually, over the prior year's Assessment Fee, on the
first day of January each year, based upon the ten (10) year United States
Treasury Note rate as of the last day of the immediately preceding
November, plus 1.5%.
6. The EDUs for purposes of computing the Assessment Fees to be collected
pursuant to this Agreement shall be determined by in accordance with Exhibit "D," attached
hereto and incorporated herein by this reference.
7. Notwithstanding anything to the contrary in this Agreement, the Assessment Fees
to be collected pursuant to this Agreement shall not be collected with respect to property owned
by Developer as described on Exhibit "C," attached hereto and incorporated herein by this
reference.
8. The City agrees not to allow any tapping into, connecting to or using of the
Extensions without the owners of properties to be benefited from said tapping or connecting
having first paid to the City the Assessment Fees and such other charges as set forth in Sections 4
and 5 above. During the term of this Agreement, the City shall not have the authority to waive
the Assessment Fees for tapping into, connecting to or using the Extensions, without the prior
written consent of Developer. To the extent that the City does waive any Assessment Fees, the
City shall be responsible for payment to Developer of the Assessment Fees that would have
otherwise been payable by the owner of such properties benefiting from tapping onto, connecting
to or using the Extensions.
9. The City shall pay to Developer the sums agreed by it to be collected pursuant to
the provisions of this Agreement within sixty (60) days after receipt thereof at the address of
Developer as set forth hereinafter or at such other addresses as Developer shall provide to the
City.
10. In the event of the assignment or transfer of the rights of Developer voluntarily,
involuntarily or by operation of law, the City shall pay all benefits accruing hereunder, after
notice, to such successor of Developer as the City, in its sole judgment, deems entitled to such
benefits; and in the event conflicting demands are made upon the City for benefits accruing
under this Agreement, the City may, at its option, commence an action in interpleader joining
any party claiming rights under this contract, or other parties which the City believes to be
necessary or proper, and the City shall be discharged from further liability upon paying the
person or persons whom any court having jurisdiction of such interpleader action shall
determine, and in such action the City shall be entitled to recover its reasonable attorneys' fees
and cost, which fees and costs shall constitute a lien upon all funds accrued or accruing pursuant
to this Agreement.
11. Nothing contained herein shall be construed to affect or impair in any manner the
LATECOMERs AGREEMENT P. 3
right of the City to regulate the use of its municipal water system or sewer system, of which the
Extensions shall become a part under the terms of this Agreement, pursuant to the provisions of
any ordinance, resolution or policy now or hereafter in effect. The imposition by the City of any
such requirement shall not be deemed an impainnent of this Agreement though it may be
imposed in such a manner as to refuse service to an owner or owners of a parcel in the benefited
area in order to secure compliance with any such requirement of the City.
12. This Agreement shall become operative as of the date first written above, and
shall remain in full force and effect for a period of seventeen (17) years after the date first written
above, or until Developer, or its successors or assigns, shall have been fully reimbursed as
aforesaid, whichever event occurs earlier; provided, that in the event the Extensions, or any
portions thereof, shall during the term of this Agreement, be rendered useless by the redesign or
reconstruction of a portion of the Extension, or of the City's municipal water or sewer systems,
then the City's obligation to collect for Developer the Assessment Fees provided pursuant to this
Agreement shall cease.
13. No waiver, alteration or modification of any of the provisions of this Agreement
shall be binding unless in writing and signed by a duly authorized representative of the City and
Developer.
14. All communications regarding this Agreement shall be sent to the parties at the
addresses listed below, unless notified to the contrary.
Owl Corporation City of Kalispell
15. All of the provisions, conditions, regulations and requirements of this Agreement
shall be binding upon the successors and assigns of Developer, as if they were specifically
mentioned herein.
16. This Agreement shall be construed in accordance with the laws of the State of
Montana, and jurisdiction of any resulting dispute shall be in Flathead County, Montana. The
prevailing party in any legal action arising from this Agreement shall be entitled to all costs and
expenses, including attorneys' fees, expert witness fees or other witness fees and any such fees
and expenses incurred on appeal.
17. Any invalidity, in whole or in part, of any of the provisions of this Agreement
shall not affect the validity of any other of its provisions.
18. No term or provision herein shall be deemed waived and no breach excused unless
such waiver or consent shall be in writing and signed by the party claimed to have waived or
consented.
LATECOMERs AGREEMENT P. 4
19. This Agreement, including its exhibits and all documents referenced herein,
constitutes the entire agreement between the City and Developer, and supersedes all proposals,
oral or written, between the parties on the subject.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and year
above written.
OWL CORPORATION,
A MONTANA CORPORATION
10-B
[NAME]
[TITLE]
DATE .2004
CITY OF KALISPELL, MONTANA
M.
DATE
NOTARY BLOCS
Exhibit A — pnints of sewer and water system extensions
Exhibit B — breakdown of reimbursable costs
Exhibit C — legal description of West View Estates Subdivision
Exhibit D — EDU determination
[NAME]
[TITLE]
.2004
LATECOMERs AGREEMENT P. 5
IP
E
4
E13
WEST VIEW ESTATES
xhibit A
SECTION 3 6 WATERAND �SEWER MAIN EXTENSIONS E
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EXHIBIT B
LATE COMERS AGREEMENT FOR REIMBURSEMENT FOR WATER AND
SEWER SYSTEM EXTENSIONS
F- ACTIVITY
WATER
SEWER
TOTAL
Design Engineering
$34,821
$52,231
$87,052
Construction
$335,974
$372,948
$708,921
Easements Costs
$12,392
$60,412
$72,804
Easement Fees
$50
$50
$100
MDEQ Review Fees
$25
$25
$50
SWPPP Fees
$900
$900
$1,800
Eby Surveying
$675
$675
$1,350
Sands Surveying
$3,364
$5,047
$8,411
ISUBTOTAL
$388,201 1
$492,288 1
$880,488
110% Contigency
$38,820
$49,229
�,04�9
[T70T-ALCOST
$427,021
$541,516
$9 �,537
DESCRIPTION
A TRACT OF LAND, SITUATED, LYING AND BEING IN THE WEST HALF OF
THE SOUTHWEST QUARTER OF SECTION 25, TOWNSHIP 29 NORTH, RANGE
22 WEST, P.M.M., FLATHEAD COUNTY, MONTANA, AND MORE
PARTICULARLY DESCRIBED AS FOLLOWS:
BEGINNING at the southwest comer of the Southwest Quarter of Section 25, Township
29 North, Range 22 West, P.M.M., Flathead County, Montana, which is a found pin on
the centerline of a 60 foot county road known as Stillwater Road; Thence along the west
boundary of said SW 1/4and along said centerline NOO'06'40"W 1982.69 feet; Thence
leaving said west boundary and said centerline N89'59'1 1"E 1327.96 feet to a set iron
pin on the east boundary of the West Half of Southwest Quarter of said Section 25;
Thence along said east boundary SOO'00'23"W 1985.86 feet to the southeast comer
thereof and the centerline of a 60 foot county road known as West Reserve Drive;
Thence along said centerline and along the south boundary of SW 1/4N89'53'02"W
1323.89 feet to the point of beginning and containing 60.396 ACRES. Subject to and
together with all appurtenant easements of record.
EXHIBIT D
COST PER EQUIVALENT DWELLING UNIT (EDU) DETERMINATION
The purpose of this exhibit is to clarify and document the methodology used to determine
the cost per Equivalent Dwelling Unit (EDU) for reimbursement to Owl Corporation as
referenced in the Late Comers Agreement for Reimbursement for Municipal Water and
Sewer System Extensions between the Owl Corporation and the City of Kalispell.
PAVEINMI
An equivalent dwelling unit is defined as a single family home. The water demand of an
EDU is defined as the maximum daily demand of a residential single family home. This
demand is calculated as follows:
Total people per home (EDU) = 2.31 (Ref, 2000 Census Data)
Average Day Water Demand = 145 gallons per person per day (0.10 gallons per person
per minute) (Ref. City of Kalispell Water, Wastewater, and Storm Drainage Facility Plan,
January, 2002, Page 3-6)
Average Day/Maximum Day Peaking Factor = 2.7 (Ref. City of Kalispell Water,
Wastewater, and Storm Drainage Facility Plan, January, 2002, Page 3-6)
Maximum Day Demand per EDU = (2.31 people/EDU)x(O. 10 GPM/person)x(2.7)= 0.62
GPM per EDU
The Owl Corporation water main has been oversized in accordance with the City of
Kalispell Water, Wastewater, and Stonn Drainage Facility Plan, January, 2002 in order to
serve future growth in the area. Since capacity of a water main varies with pressure (and
elevation), and since use of capacity is how reimbursement will be based, it is necessary
to establish a point on which capacity for the Late Comers Agreement will be based.
This point will be the entrance to West View Estates. It is important to note this flow
establishes the base point for the reimbursement to Owl Corporation. However, this flow
does not necessarily define the actual capacity of the water main as capacity may change
depending on where you are along the water main (e.g. capacity is greater at lower
elevations).
Based on the design report for the Section 36 Water and Sewer Extensions, the capacity
at West View Estates is 2,530 gallons per minute (GPM) at a residual pressure of 26.5
psi. It is assumed West View Estates and other developments in the area will require a
minimum fire flow of 1,000 GPM. Therefore, the leftover domestic capacity of the main
is 1,530 GPM. The maximum number of EDU's that can be serviced with this capacity is
figured by dividing this capacity by the Maximum Day Demand per EDU, which gives a
total number 2,467 EDU's that can be served by this main. It should be noted that all
development in the area will benefit from the 1,000 GPM fire flow required by West
View Estates. Subtracting the 127 EDU's for the West View Estates Subdivision leaves a
total of 2,340 EDU's of leftover capacity in the main that are eligible for reimbursement
to Owl Corporation.
The maximum daily demand for the 127 lots in West View Estates is (127 EDU's) x
(0.62 GPM/EDU) = 79 GPM. Subtracting the fire flow and domestic demands for West
View leaves 1,451 GPM of additional capacity in the water main not being used by West
View Estates. Dividing the leftover capacity by the total domestic capacity gives (1,451
GPM/ 1530 GPM) equals 95%, which is the maximum percentage of reimbursement Owl
Corporation is entitled to.
By dividing the total project cost by the maximum number of EDU's the main can
supply, we will get the cost per EDU reimbursable to Owl Corporation. With a total
project cost of $427,021 and the total EDU's served of 2,467, the cost per EDU is
$173.09. With the total leftover EDU's of 2,340, the maximum amount of
reimbursement to Owl Corporation will be (2,340 EDU's x $173.09/EDU) = $405,038.
for the year 2005. Per Section 5.0 in the Late Comer's Agreement, the annual
reimbursement fee will be increased annually based on the U.S. Treasury Note Rate plus
1.5%. The following table offers an example assuming the Treasury Note Rate is 4.5%,
giving an annual interest rate of 6.0%:
Yearly Reimbursement Costs/EDU
Year
Reimbursement
Reimbursement Amount per EDU
Factor
1
1.00
$173.09
2
1.06
$183.48
3
1.12
$193.86
4
1.19
$205.98
5
1.26
$218.09
6
1.34
$231.94
7
1.42
$245.79
8
1.50
$259.64
9 1
1.59
$275.21
10
1.69
$292.52
11
1.79
$309.83
12
1.90
$328.87
13
2.01
$347.91
14
2.13
$368.68
15 1
2.26
$391.18
16
2.54
$439.65
17
2.69
$465.61
This example table is for illustrative purposes only. The actual adjustments. to the annual
rate will be made based on the Treasury Note Rate on the last day of the immediately
preceding November, plus 1.5%.
If a project with a fire flow requirement higher than the base fire flow of 1,000 GPM
were to connect to the main, the future development would benefit from this extra
capacity due to the oversized pipe. Therefore, there would have to be a payment for the
additional fire flow above and beyond the 1,000 GPM already supplied. This fire flow
cost would be figured by converting the extra demand to an equivalent number of
dwelling units. For example, if a new development were to need a fire flow of 1,500
GPM, the cost will be figured by converting the extra 500 GPM to the number of
dwelling units that will use 500 GPM. In this case, this would be 500 GPM/ 0.60 GPM
per dwelling unit, which equals 833 dwelling units.
In the future, if another main from the City of Kalispell system is extended to connect to
this main creating a "looping system," the reimbursable costs to Owl Corporation will be
figured by an engineering analysis of the system in order to estimate the amount of flow
provided from the water main extended by the Owl Corporation. The impact per EDU to
this 14-inch main will be determined and will be reimbursed appropriately.
�, Npuy" -8
An equivalent dwelling unit for wastewater is also defined as a single family home. The
maximum wastewater flow per EDU will be defined as the peak hourly flow from a
residential single family home. This demand is calculated as follows:
Total people per home (EDU) = 2.31 (Ref. 2000 Census Data)
Average -Day Wastewater Demand = 100 gallons per person per day (0.07 gallons per
person per minute) (Ref. Montana Department of Environmental Quality)
Average-Day/Maximurn Day Peaking Factor = 4.1 (Ref. Montana Department of
Environmental Quality, equation for peak hourly flow based on population)
Maximum Peak Hour Flow per EDU = (2.2 people/EDU)x(O.07 GPM/person)x(4.1)=
0.66 GPM/EDU.
The sewer main has been oversized in accordance with the City of Kalispell Water,
Wastewater, and Storin Drainage Facility Plan, January, 2002 in order to serve future
growth in the area. Sewer Main reimbursement costs are much easier to figure since the
capacity of the sewer main is dependent only on pipe diameter and slope. Based on the
slope and pipe diameter, the capacity of the sewer main is 750 GPM. Using a Maximum
Peak Hour flow of 0.66 GPM per EDU, the total number of EDU's that can be served is
1,136. Subtracting the 127 EDU's for West View Estates leaves a total of 1,009 EDU's
of leftover capacity reimbursable to Owl Corporation.
The maximum peak flow West View Estates will have in the sewer main will be (0.66
GPM/EDU x 127 EDU) = 83.8 GPM. This leftover capacity is (750GPM — 83.8 GPM) =
666.2 GPM. Dividing the leftover capacity by the total capacity of the sewer main gives
(666.2 GPM/ 750 GPM) equals 89%, which is the percentage of reimbursement Owl
Corporation is entitled to.
By dividing the total project cost by the maximum number of EDU's the sewer main can
supply, we will get the cost per EDU reimbursable to Owl Corporation. With a total
project cost of $541,516 and the total EDU's served of 1,136, the cost per EDU is
$476.69. With the total leftover EDU's of 1,009, the maximum amount of
reimbursement to Owl Corporation will be (1,009 EDU's x $476.69/EDU) = $480,980
for the year 2005. Per Section 5.0 in the Late Comer's Agreement, the annual
reimbursement fee will be increased annually based on the U.S. Treasury Note Rate plus
1.5%. The following table offers an example assuming the Treasury Note Rate is 4.5%,
giving an annual interest rate of 6.0%:
Yearly Reimbursement Costs/EDU
Year
Reimbursement
Reimbursement Amount per EDU
Factor
1
1.00
$476.69
2
1.06
$505.29
3
1 1.12
$533.89
4
1.19
$567.26
5
1.26
$600.63
6
1.34
$638.76
7
1.42
$676.90
8
1.50
$715.04
9
1.59
$757.94
10
1.69
$805.61
11
1.79
$853.28
12
1.90
$905.71
13
2.01
$958.15
14
2.13
$1,015.35
15
2.26
$1,077.32
16
2.54
$1,210.79
17
2.69
$1,282.30
This example table is for illustrative purposes only. The actual adjustments to the annual
rate will be made based on the Treasury Note Rate on the last day of the immediately
preceding November, plus 1.5%.
As with the water, if a project such as a commercial or industrial development were to
connect to the sewer, the reimbursement costs would be figured by taking the wastewater
flow and converting to an equivalent dwelling unit. For example, if a new industry were
to connect with an estimated peak hourly flow of 250 GPM, the number of EDU's would
be figured by dividing the flow by the flow per dwelling unit. For this example, the
number of EDU's would be (250 GPM)/(0.66 GPM per dwelling unit) which would equal
379 dwelling units.
City of Kalispell Public Works Department
Post Office Box 1997, Kalispell, Montana 59903-1997 - Telephone (406)758-7720, Fax (406)758-7831
REPORT TO: Mayor and City Council
FROM: James C. Hansz, P.E., Director of Public Works
SUBJECT: Cost Based Fees for Development
MEETING DATE: December 13,2004
In June City Council discussed the concept of establishing cost -based fees for development
projects. The objective of the discussion was to explore ways to ensure that, through appropriate fee
systems, development projects would not create a financial burden on the taxpayer and would, in effect,
pay their fair share toward the cost of mitigating problems related to, but in many cases external to the
boundaries of the development. With respect to roads, the previously developed memo of June 24, 2004 is
attached for background information. In it were outlined the options available under current law for
funding road improvements. Also included were three potential funding options that could be further
explored at the direction of Council. Those three options were: 1) Bonding, with additional legislative
authority needed to allow for certain types of revenue bonds secured for payment by non-traditional
revenue sources, 2) Establishing a Street "Utility" that would treat the revenue requirements of managing
a city street system in the same manners as currently done for the City's conventional utility systems, 3)
Additional dedicated, i.e. local option gas taxes. This memo deals with fiirther information related to the
second of these three alternatives, the street utility concept.
Since June we have received additional information from our Utility rate consultants for cities in
Oregon. The information shows how some cities have successfully established successful revenue
management systems for their roads. These systems are similar 'in their results to the street utility we have
suggested. This information, along with other data from the Attorney General's office, has led the City
Attorney to conclude that Kalispell may seriously consider establishing a cost -based system of service
charges and fees. This system could fund the majority of costs related to street maintenance and the
eventual upgrading ofroadways that becomes necessary over time because growth consumes the
available roadway capacity. This is identical in principle to the utility SDC which provides the revenue to
fund capacity -related improvements necessary to replace utility system capacity consumed by growth.
Staff will discuss the further development of this concept with City Council and request guidance
on whether to further pursue this option with more detailed study involving our utility rate consultants.
December 13, 2004 Cost Based Fees.doc
City of Kalispell Public Works Department
Post Office Box 1997, Kalispell, Montana 59903-1997 - Telephone (406)758-7720, Fax (406)758-7831
MEMORANDUM
24 June 2004
To: Chris A. Kukulski, City Manager
From: Charlie Harball, City Attorney, Tom Jentz, Tri-City Planning Director
James C. Hansz, P.E., Director of Public Works/City Engineer
Subject: Work Session on Funding Road Improvements
The City Council asked for a work session to discuss the options available to the City for funding
road improvements. In support of that work session staff has performed a review of current and
potential road funding options that are open or may potentially be available to assist in funding
costly road improvement projects. The proposed revision of the City's Extension of Services
Plan includes the following section pertaining to funding road improvements:
'67. Financing the construction of new streets in a proposed development, or the
upgrading ofstreets in an existing developed area, shall be accomplished in one, or a
combination of, thefollowing methods:
• Use ofprivatefunds in connection with the development of a project.
• Through theformation of a Special Improvement District (S.I.D.).
• Federal or State grantfunds, provided saidjunds are available and their usefor
said improvements has been approved by the City Council.
• State Fuel Tax monies, provided saidjunds are available, that their usefor said
purpose does not impair the normal maintenance of City streets, andfurther
provided that the use ofsaidjunds has been approved by the City Council and is
in accordance with all applicable laws of the State ofMontana.
• General Obligation Bondfunds issued by the Cityfor improvements having a
benefit to the public beyond that related to a new project or development. "
These five alternatives also are listed in the current policy. They span the range of traditional
funding options that have been and are currently available to the City for improvements of this
type. Examples of how these funding alternatives are presently used or could be used in the
future are as follows:
memo0192004.doc
Use ofprivatefunds in connection with the development of a project.
Improvements funded in this manner are typically an item directly pertaining to
the development of a specific project, such as the internal street system for the
project. In addition, private funds may provide improvements of the existing
street system when the project has a material and adverse affect on the existing
system, such as the need for a right/left turn lane into a project to ensure safe
access/exit after the development is complete. Other improvements that may be
necessary to bring an existing adjacent street up to current City standards
occasionally may be required when there is a clear connection of the need with
the development.
Through theformation of a Special Improvement District (S.I.D.).
A Special Improvement District may occasionally be used to fund development -
related road improvements. The current Kalispell Subdivision rules allow this
funding for small (five lots or fewer) subdivisions. Also, when an existing
roadway requires upgrading, and the need cannot be shown to be exclusively due
to a proposed development, or there is a consensus of City Council that a broader
community interest would be served, an S.I.D. may be created to fund roadway
improvements in connection with a specific project. An S.I.D. may also be
appropriate to correct roadway deficiencies that have developed over a long time
as a result of small incremental of development within an area. The improvement
of Sunny View Lane is the most recent example of SID funding to improve a
major roadway that had become inadequate due to incremental growth over many
years.
Federal or State grantfunds, provided saidjunds are available and their usefor
said improvements has been approved by the City Council.
Federal or State grant funds, if available, could be used to fund roadway
improvements. Federal CDBG funds might be appropriate for projects where a
connection can be made to improved economic activity. Federal Highway funds,
specially earmarked in the Federal Budget, may also be used to fund significant
projects, such as the Kalispell West Side Bypass Project. Within the annual
Federal Highway appropriation, Montana currently receives nearly $260 million
to improve and maintain the state system of roads. Montana Department of
Transportation has a long-standing program that allocates a percentage of this
allocation to making improvements to the designated Federal Urban Highway
System. This State program is the source of funding for the Meridian Road
project.
State Fuel Tax monies, provided saidjunds are available, that their usefor said
purpose does not impair the normal maintenance of City streets, andfurther
provided that the use ofsaidJunds has been approved by the City Council and is
in accordance with all applicable laws of the State ofMontana.
At the present time the State's annual return of fuel tax funds is the source of
funds that are spent each year in the City Gas Tax budget. These funds are used
for maintenance related items to repair and maintain the current City street
system. Certain of these funds also are set aside to install sidewalks, and there is
nothing that prevents their use for other street -related costs, including making
significant improvements to the existing street system that go beyond the
definition of routine maintenance. However, the funds available in any given year
amount to about $300,000.00. Therefore, a project of any significant size would
require the dedication of Gas Tax funds over several years in order to complete
the project. This could, effectively, greatly reduce or prevent altogether the
routine maintenance of streets unless other funds were identified and dedicated to
this task, hence the inclusion above of wording for the proposed policy revision
that addresses this potentially problematic situation.
General Obligation Bondfunds issued by the Cityfor improvements having a
benefit to the public beyond that related to a new project or development.
Kalispell, like other Class I cities, may issue general obligation bonds that are
guaranteed by the City's taxing authority. There is substantial unused bonding
capacity for the City to consider this option for costly projects. General obligation
bonds were recently issued by Bozeman to address some of that city's
transportation deficiencies. General Obligation Bonds require approval by the
voters.
The preceding five alternatives are the funding options currently available to the City through
state law. We presently can see several other potential funding alternatives but some of these
cannot be employed without changes to state law or the cooperation and participation of others.
These other alternatives are:
• Revenue BondslLoans.
• Establishing a Street Utility.
0 Supplemental Gas Tax.
How could these potential options fit into a funding plan for City road improvements?
0 Revenue BondslLoans.
Revenue bonds are presently used by MDT to fund large highway projects. They are
titled "GARVEE" Bonds referring to their structure: Grant Anticipation Revenue
Bonds. MDT issues bonds secured for repayment by funds from the anticipated
revenue stream of the annual Federal Highway Program. The limit on State bond
financing is $150 million and all of this is presently committed toward the State's
large US 93 project. In other states, cities and other levels of government have access
to this funding option, and it is being pursued in Montana as a potential solution for
cities to fund large road projects on their Urban Systems which exceed their
capability under the present financing system. Kalispell is pursuing this option to
ftind the Meridian Road Project. MDT have indicated their support of the concept
which would allow most of the annual Kalispell Urban System funding to be
dedicated toward debt service on these bonds. There is some question whether this
will be possible within the current law and the issue is being researched by the City
Attorney and bond counsel with the intent of requesting an Attorney General's
opinion on the concept.
A similar issue of legal authority exists with the potential for conventional loans
from the Montana Board of Investments which would be repaid, again, by use of
memoO192004.doc
Urban System funds passed through to the cities by MDT. MBol has indicated an
interest in establishing such a loan program but the legality of the concept is uncertain
because of doubt about the legal authority of cities to obligate themselves for this type
of debt. Further, present MBol loan programs do not have the funding capacity to
service the large loan amounts needed for highway projects, so a new program would
be required. Again, MDT has indicated support for this concept, but the question of
legal authority to use this financing method may need to be reviewed by the State
Attorney General. Legislative changes also may be necessary to open up this option
for cities.
0 Establishing a Street Utility.
This concept was briefly discussed during the City's recent utility rate setting effort.
The idea is for cities to approach the management of their street systems in the same
business -like and comprehensive way they manage their water and sewer utilities. In
this concept, the street funding structure would comprise two distinct pieces: the
maintenance portion, which would mimic the utility usage charges, and would
generally be equivalent to the current annual maintenance assessment, and a new
capacity replacement/growth related portion equivalent in its administration to the
current utility system development charges. The current street maintenance
assessment system would be retained and enhanced by a systematic cost -based
analysis to identify all those costs related to operation, maintenance and replacement
of the existing system. In short, the maintenance assessment would charge those who
are using and wearing out the existing street facilities for their proportionate share of
costs of upkeep and replacement -in -kind.
The second and new half of the street utility funding mechanism would be a
street system development charge that is similar to the utility SDC which is charged
to all new water and sewer customers. New development would be charged the same
type of fee for their proportionate cost to replace the existing street system capacity
they will use and which was provided for their use by the current residents who
developed the current street system. The new users, in effect, reimburse the system so
the system's capacity can be renewed in the future. The deten-nination of this new
street SDC would involve the same comprehensive cost -based analysis that was
recently done for the other utilities. This analysis would result in determination of a
street SDC fee that reflects the capital costs related to replacing a residential unit of
street capacity and which should be reimbursed by new development projects in order
for the City to have the funds available to replace that street system capacity at some
future date. The street SDC fees would be collected and kept separate, as is done with
utilities, and would be used solely for making street system improvements related to
replacing street capacity consumed over time by community growth.
The location and timing of major capacity related improvements are typically
driven by the demands of growth. Quiet residential streets seldom require more than
rehabilitation to their original specifications. Arterial and collector streets, busy
intersections and streets leading to and from major destinations, such as commercial
centers, are more likely to require significant upgrade due to the increases in traffic
caused by growth. These improvements could be substantially funded by the street
SDC fees because the need for the improvement would capacity related.
The ability for cities to establish this type of street funding system is uncertain.
State law allows general government cities to set fees for maintaining their street
systems. It also allows this funding/operational concept to be used in connection with
other utilities. Further, the law permits cities to set general levies to repay GO bonds
which could be issued for street improvements. The issue then is whether these
permitted options for funding streets and utilities can be seen to be appropriate when
combined for funding street related improvements.
0 Supplemental Gas Tax.
This is an option that potentially exists but at the present time lies outside the
authority of Kalispell to implement as a solution to fund City road projects. At the
present time this would be a county decision. As an option, it has several attractive
qualities: 1) small increments of gas tax can generate fairly large revenue for road
projects; 2) the taxpayers are those who are using the road system; 3) non-residents
who contribute to the road maintenance problem also would contribute to the revenue
stream needed for repairs and improvement.
memo0192004.doc