08. Ordinance 1316 - Establishing Program to Recover Hwy 93 S Utility CostsN
REPORT TO: Mayor and City Council
FROM: Jim Hansz, Director of Public Works
SUBJECT: Cost Recovery, US 93 South Utilities
MEETING DATE: June 7, 1999
BACKGROUND: At the April 12, 1999 City Council work session staff presented information
that outlined a number of potential methods for recovering the capital cost of utilities proposed to
be installed by the City during construction of the US 93 South highway project. A copy of that
information is attached. In summary, four basic ways were identified to recover the City's capital
investment for utility improvements:
1. Recovery based on a surcharge by area, either per square foot or per acre.
2. Recovery based on a surcharge per linear foot of frontage on US 93.
3. Recovery based on a proportional surcharge on City connection fees.
4. Recovery that combines the preceding three methods.
Hypothetical cost recovery amounts were calculated for four example parcels. This was
based on the estimated construction cost of the utilities. The results of this calculation are shown
in Table 1 as the proportional share of cost reimbursement for the utilities serving the property.
This cost would be paid to the City at the time utility service is requested by the property
owner/developer. Method 4 blended one-third recovery from each of the three basic approaches.
TABLE 1
Original Comparison of Recovery Methods
Parcel Method 1
Method 2
Method 3
Method 4
11-EG $27,536.46
$71,684.40
$7,680.00
$35,597.25
12-BA $26,308.07
$ 00.00
$7,680.00
$11,317.33
11-2 $5,630.13
$27,581.01
$750.00
$11,308.92
11-C $4,913.57 $ 00.00 $750.00 $1,885.84
Post Office Box 1997 • Kalispell, Montana 59903-1997
Telephone (406) 758-7700 • FAX (406) 758-7758
The City Council generally concurred with the staff s recommendation that cost recovery
be based on a formula that combined each of the three basic methods previously outlined. The
City Council asked for staff to provide additional examples with a different proportioning of the
cost recovery between the three basic methods. Specifically, they asked that each of the four
sample parcels be analyzed on the basis of 10%, 20% and 30% cost recovery from a front
footage surcharge. For each of those examples, the remainder of the cost should be divided and
recovered equally between a connection fee surcharge and the area of the property served. Table
2 shows this comparison.
TABLE 2
Alternate Comparison of Recovery Methods
Parcel
10% Frt.Ft
20% Frt.Ft.
30% Frt.Ft.
33.3% Frt.Ft.
11-EG
$23,013.24
$28,423.42
$33,829.51
$35,597.25
12-BA
$15,293.24
$13,594.40
$11,895.10
$11,317.33
11-2
$5,628.33
$8,068.40
$10,506.88
$11,308.92
11-C
$2,548.43
$2,265.27
$1,982.11
$1,885.84
As would be expected, reducing the amount
of recovery from front footage reduces the
recovery cost for parcels with front footage, and causes the properties without front footage to
pay a higher recovery surcharge. However, there is still a differential that reflects the differences
in ease of access to utilities that would exist between parcels.
RECOMMENDATION: Staff continues to recommend a cost recovery method that combines
all three approaches. Staff does not see a way to develop a "perfect" recovery formula. With this
in mind, staff recommends a recovery formula that recovers 10% by front footage with the
remainder to be recovered from connection fee and parcel area surcharges. This formula will
recognize the differences in access to utilities without creating wide disparities in surcharge
between parcels of more or less equal size. Attached is an ordinance drafted by the City
Attorney for this matter.
FISCAL EFFECTS: Installation of all utilities will cost approximately $2.6 million. New
water and sewer utilities will cost about $1.8 million of this total. It will be necessary to recover
this $1.8 million capital investment. Costs of storm drainage and replacement of existing utility
facilities would be funded from storm drain and utility accounts in accordance with current City
policy. The staff recommendation provides for full recovery of the City's $1.8 million capital
investment when utility service connections finally equal the capacity of the installed facilities.
ALTERNATIVES: As suggested by the City Council
Respectfully submitted,
James C. Hansz, P.E. Chris A. Kukulski
Director of Public Wok / City Engineer City Manager
Report compiled May 5,1999
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 bene-fitted via their
installation.
NOW, THEREFORE, BE IT ORDAINED BY THE CITY COUNCIL OF THE CITY OF
KALISPELL, AS FOLLOWS:
H;\attsec\wp\ord\US93costrecovery
SECTION I. 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. 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
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 AND SIGNED BY THE MAYOR OF
THE CITY OF KALISPELL, MONTANA, THIS DAY OF JUNE, 1999.
Wm. E. Boharski
Mayor
Attest:
Theresa White
City Clerk
H;Aattsec\wp\or, \US93costrecover,
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April 9, 1999
To: Al Thelen, Interim City Manager
From: Jim Hansz, Director of Public W rks
Subject: US 93 Cost Recovery
Additional information concerning cost breakdowns for US 93 South utilities has been
developed. We have separated costs for replacement facilities, which can be funded from water
and sewer replacement accounts without the need for special reimbursement, and the cost of new
facilities that would require a cost recovery formula. We have also estimated the present cost of
the future upgrade of the sewer lift station in order to permit the recovery of these costs now
rather than at some future point.
BREAKDOWN OF COSTS
TABLE 1, COST OF IMPROVEMENTS
Improvement
Water
Sewer
Future Sewer Lift Station Upgrade
Storm Drain*
Replacement
$291,000
New Total
$539,000 $830,000
$125,000 $1,165,000 $1,290,000
$37,000
$170,500
$358,000
S 170,500
S395,000
* Storm Drain costs are not proposed to be recovered from property abutting this project
because the majority of storm water flows originates from beyond the project area. This total
reflects a $20,000 increase due to needed changes identified durinz Plan -In -Hand review.
BREAKDOWN OF SERVICE AREA
The service area for water and sewer has been equalized to the same boundary in order to
ensure that all who receive services are the same. (Staff recommends that any parcel served by
y
NN
these facilities be required to have both water and sewer service.) Details of the service area are
as follows:
TABLE 2, AREAS AND FRONTAGE
Service area: 7,977,219 square feet 183.1 acres
Front Footage: East = 5,432 L.F. West = 5,290 L.F.
The area amount shown has been adjusted to remove all road rights of way so that the net
amount is for only the privately held properties. Front footage amounts have likewise been
adjusted to remove the footage attributable to road crossings. Attached is a copy of Exhibit C
from previous work session packages. This exhibit shows the correct boundary.
With the costs. and areas now better defined, we believe there are four ways to recover the
cost of improvements:
1. Recovery based on surcharge by area, per square foot or per acre.
2. Recovery based on surcharge per linear foot of frontage on US 93.
3. Recovery based on a proportional surcharge on City connection fees.
4. Recovery that combines the preceding three methods.
COST RECOVERY SURCHARGE - BASE CALCULATIONS
Recovery by Area Served:
Formula = Area / Facilities Cost = Facilities Cost Recovery.Fee / per unit
Cost of New Water Facilities = $539,000.00, from Table 1
Service Area = 7,977,219 square feet, = 183.1 acres, from Table 2
Water Recovery Fee = $539,000 / 7,977,219 S.F. _ $0.0676 / S.F., _ $2,944.66 / acre
Cost of New Sewer Facilities = $1,165,000 + 170,500 = $1,335,500, from Table 1
Sewer Recovery Fee = $1,335,500 / 7,977,219 S.F. _ $0.1674 / S.F..= $7,291.94 / acre
Recovery by Front Footage:
Formula = Front Footage / Facilities Cost = Facilities Cost Recovery Fee / per unit
Front Footage = 5,290 LY + 5,432 L.F. = 10,722 L.F, from Table 2
Cost of New Water Facilities = $539,000.00
Water Recovery Fee = $539,000 / 10,722 L.F. _ $50.27 L.F.
Table 3
Cost Recovery
Based on Connection Fees
Cost recovery can be based on a proportional recovery of the capital investment throtigh the
City's existing connection fee schedule. This schedule utilizes the size of metered water service
as the basis of fees. Surcharge Fees are based on current estimated construction costs for new
facilities only. For water this total is S539,000.00. For sewer this total is $1,335,500.00 and
includes the cost to upgrade the lift station to its final design capacity of 750,000 gallons per day.
Meter
1999 Water
Surcharge*
1999 Sewer
Surcharge*
Increase Factor**
5/8"
$618
S216
$1434
$534
1.0
3/4"
$890
$313
$2064
$774
1.44
1"
$1582
$553
$3670
$1367
2.56
1 '2"
$3560
$1244
$8259
$3076
5.76
2"
$6328
$2212
$14683
$5468
10.24
3"
$14239
$4977
$33038
$12383
23.04
4" or larger
$25313
$8845
$58736
$21867
40.96
* The capacity of the constructed sewer system governs the number of potential users for both
water and sewer. For Kalispell, the design for a residential sewer user is 300 gallons per capita
day per household. The overall capacity of sewer facilities to be constructed is 750,000 GPD.
This capacity limits total residential connections to 2,500 or the equivalent commercial usage
based on the larger size water meters used by commercial development. This number is used for
the calculation of the both the water and sewer surcharges shown above.
** The increase factor is the amount of increase in utility service provided by the larger size
connection. It is the basis for the increased cost of the connection and is consistent for water and
sewer connection charge.
Cost of New Sewer Facilities = $974,000 + $191,000 + 170,500 = $1,335,500
Sewer Recovery Fee = $1,335,500 / 10,722 L.F.
_ U24.57 L.F.
Recovery by a Surcharge on Water and Sewer Connection Fees:
Table 3 lists the 1999 connection fee for water and sewer for the
year 1999 and the
calculated cost recovery surcharge for each connection. The following extract from Table 3
summarizes and totals this surcharge.
Meter Size 1999 Water Surcharge 1999 Sewer Surcharge
Total Surcharge
5/8" $618 $216 $1434 $534
$750
3/4" $890 $313 $2064 $774
$1087
1" $1582 $553 $3670 $1367
$1920
1'2 $3560 $1244 $8259 $3076
$4320
2" $6328 $2212 $14683 $5468
$7680
3" $14239 $4977 $33038 $12383
$17360
4" or larger $25313 $8845 $58736 $21867
$30712
EXAMPLES OF COST RECOVERY
Four typical properties were selected to illustrate the application of the various methods
of cost recovery. The four properties are two residential parcels, one with US 93 frontage and
one without, and two larger parcels of approximately equal size sim, again, one with frontage
and one without frontage on US 93. The four parcels selected are:
Parcel 11-EG, 2.69 acres, 410.0 feet of frontage
Parcel 12-BA, 2.57 acres, 0.0 feet of frontage
Parcel 11-2, 0.55 acres, 157.75 feet of frontage
Parcel 11-C, 0.48 acres, 0.0 feet of frontage
Cost Recovery Based on Area:
Formula = Area x (Facilities Cost Recovery Fee / per unit) = Recovery Fee
Parcel 11-EG, 2.69 acres: water = 2.69 x $2,944.66 = $7,921.14
sewer = 2.69 x $7,291.94 = S 19.615.32
Total = $27,536.46
Parcel 12-BA, 2.57 acres: water = 2.57 x $2,944.66 = $7,567.78
sewer = 2.57 x $7,291.94 = $18.740.29
Total = 526,308.07
Parcel 11-2, 0.55 acres: water = 0.55 x $2,944.66 = $1,619.56
sewer = 0.55 x $7,291.94 = $4,010.57
Total = $5,630.13
Parcel 11-C, 0.48 acres: water = 0.48 x $2,944.66 = $1,413.44
sewer = 0.48 x $7,291.94 = $3,500.13
Total = $4,913.57
This example shows that for parcels of nearly equal size, recovery costs are virtually the
same, as would be expected. It also shows that parcels with difficult access to the utility, i.e.
those having no front footage, pay the same recovery charge even though development costs are
higher.
Recovery Based on Front Footage:
Formula = Front Footage x (Facilities Cost Recovery Fee / per unit) = Recovery Fee
Parcel 11-EG, 410 L.F.: water = 410 x $50.27 = $20,610.70
sewer = 410 x $124.57 = $51,073.70
Total = $71,684.40
Parcel 12-BA, 0.0 L.F.: water = 0.0 x $50.27 = $00
sewer = 0.0 x $124. = S00
Total = $00
Parcel 11-2, 157.75 L.F.: water = 157.75 x $50.27 = $7,930.09
sewer = 157.75 x $124.57 = $19,650.92
Total = $27,581.01
Parcel 11-C, 0.0 L.F.: water = 0.0 x $50.27 = $00
sewer = 0.0 x $124.57 = $00
Total = $00
This example shows that for parcels of nearly equal size, recovery costs differ widely.
Those parcels with front footage on US 93 have a cost; those without have none. In addition, a
parcel five times the size of another would pay a recovery fee about two and one-half times that
of the smaller parcel.
Recovery Based on Connection Fees:
This example assumes the residential parcels will remain residential and the Iarger parcels
will be developed commercially with a 2-inch water meter size. Connection fees are not included
in the total shown. Surcharge amounts are from Table 3.
Formula = Recovery Fee = Table 3 Surcharge Amount for Utility Connection Size
Parcel 11-EG, 2 inch water connection, water surcharge = $2,212.00
sewer surcharge = $5,468.00
Total = $7,680.00
Parcel 12-BA, 2 inch water connection, water surcharge = $2,212.00
sewer surcharge = $5,468.00
Total = $7,680.00
Parcel 11-2, 5/8 inch water connection, water surcharge = $216.00
sewer surcharge = $534.00
Total = $750.00
Parcel 11-C, 5/8 inch water connection, water surcharge = $216.00
sewer surcharge = $534.00
Total = $750.00
In this example fees are exactly the same for identical uses. There is no consideration for
the degree of difficulty to obtain service and nothing related to the size of the parcel. Cost
recovery is based solely on the demand from the system. This is the premise supporting the
City's present system of water and sewer connection charges. However, the present connection
fee schedule fails to account for installations larger than a four -inch water meter size.
Requirements greater than the capability of a four -inch meter are charged a four -inch fee
regardless of the actual size. Cost recovery based on this method alone could allow very large
commercial or industrial users to be subsidized by other ratepayers. A blended system that
combines all three of the preceding examples may solve this problem and provide greater equity.
The following example is based a system for recovering one-third the capital costs by each of the
three preceding methods.
BLENDED COST RECOVERY
Formula = 1/3[(Area Recovery Fee x Area)+(Front Footage Recovery Fee x Front
footage)+(Table 3 Surcharge Amount for Utility Connection Size)] = Blended Recovery Fee
Area Method: Water = $2,944.66 acre
Sewer = $7,291.14 acre
Total = $10,235.80 acre
Front Foot Method: Water = $50.27 L.F. x 1/3
Sewer = $124.57 L.F. x 1/3
Total = $ 174.84 L.F.
Connection Fee Method: (2-inch) Water = $2,212.00
Sewer = $5,468.00
Total = $7,680.00, 2-inch
(5/8-inch) Water = $216.00 x 1/3
Sewer = $534.00 x 1/3
Total = $750.00, 5/8-inch
For each parcel the recovery fee is as follows.
Parcel 11-EG, 2.69 acres, 410.0 feet of frontage:
1/3[(2.69 x10,235.80)+(410.0 xl74.84)+(7,680.00)] = 9,168.91+23,870.90+2,557.44
_ $35,597.25
Parcel 12-BA, 2.57 acres, 0.0 feet of frontage:
1/3[(2.57 x10,235.80)+(0.0 xl74.84)+(7,680.00)] = 8,759.89 + 00.00 + 2,557.44 = $11,317.33
Parcel 11-2, 0.55 acres, 157.75 feet of frontage:
1/3[(0.55 x10,235.80)+(157.75 xl74.84)+(750.00)] = 1,874.69 + 9,184.48 + 249.75
_ $11,308.92
Parcel 11-C, 0.48 acres, 0.0 feet of frontage:
1/3[(0.48 x $10,235.80)+(0.0 x $174.84)+(750.00)] = 1,636.09 + 00.00 + 249.75 = $1,885.84
Method 4 does not eliminate the disparities between parcels of similar size, but does
provide a rational basis for the distinction by assessing a recovery fee based on several relevant
parameters and providing for consideration of the availability of and ease of access to service.
Residential parcel 11-2 has a higher recovery fee than 11-C because 11-C has the added burden
extending sewer main to the parcel, a cost not imposed on parcel 11-2. The same situation exists
for parcels 11-EG and 12-BA.
SUMMARY OF METHODS ,
The Table 4 summarizes and compares the results of each of the four methods outlined in
the preceding sections.
Table 4
Comparison of Recovery Methods
Parcel Method 1 Method 2 Method 3 Method 4
11-EG $27,536.46 $71,684.40 $7,680.00 $35,597.25
12-BA $26,308.07 $ 00.00 $7,690.00 $11,317.33
11-2 $5,630.13 $27,581.01 $750.00 $11,308.92
11-C $4,913.57 $ 00.00 $750.00 $1,885.84
RECOMMENDATION
Staff recommends that recovery of capital costs for utilities extended south on US 93
should be based upon the fourth method outlined; a blended recovery of the costs that uses parcel
size, front footage on US 93, and utility demand, as reflected by service connection size, appears
to be most equitable for the service area. The differences that exist in the application of the
recovery fees between parcels of similar size are due to the clear differences in the ease of access
to the utility service that exists between parcels.
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