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Bob Hafferman Comments - Definitions for Extension of Services PlanTo: Mayor and Council members thru City Manager From. Bob Hafferman Subject: Definitions for Extension of ,Services Plan For: Discussion at Council workshop on August 12, 2013 The attachment consists of three parts related to the water and sewer utilities: a brief history, results and goals; definitions and explanations and anticipated questions. The objective is to adopt definitions that are EASILY understood by all entities using the Extension of Services Plan. If the definitions are not easily understood, they probably should be revised. There seems to have been developing considerable confusion as to the roles of all entities involved with new developments on guiding the financing of (1) new extension and oversizing if required and (2) replacement and upsizing of the City's infrastructure. The guiding document is the Extension of Services Plan. The latest amendment is dated September 2004. It can be found on the City website under City Clerk, Resolution 4937. While there are references to water and sewer utilities in other parts of the "Plan ", the confusion primarily relates to Chapter 6, Policies for the Extension of City Services on Utilities on pages 22 through 30. It is urged that each Council member review these pages. Item # 1 on page 22 is the time-honored City policy which, briefly stated: Developers, extend the City's infrastructure and dedicates it to the City, the City operates ands maintains the extension. Like any utility, the City residents own the existing utilities and they have the responsibility it operate and maintain them in perpetuity. Likewise, if new customers want to connect to these utilities the new customers have to pay for their connection. Just like if someone builds a house: that someone puts in the service lines. It must also be understood that when the City annexes a new area, the City has the obligation, under State law, to have the ability for that annexation to be served by the City's infrastructure the same as all city residents are served. The confusion seems to be mainly attributed to item #8 on page 23 which seems to imply that THE CITY extends "certain critical facilities" . This would be true if the water reservoir on Sheepherder Hill and the water main related thereto was considered an "extension". Actually, it was a "siting" problem. Reservoir location is always a problem. A costly elevated tank would have been required if located within the City limits, and strong objection and delays would undoubtedly result to an urgently needed facility. Sheepherders Hill provided the elevation needed Item #8 on page 23 was included in the "Plan " with the 2004 revision perhaps in an endeavor to legitimizing using City finds to extend utilities to Four Corners under the pretext of the necessity because of Highway 93 reconstruction. There had been objections to using rate and tax payers fiends to finance such endeavor. The objective of having clear definitions is that (1) whether the extension is for 10 lots or 1000 lots all developments are viewed on an equal basis in Council decisions and (2) the taxpayers and ratepayers DO NOT extend the City's utility infrastructure. Fairness requires an understanding of the words used in the discussion. During the workshop I do not plan on going over the enclosures as I believe reading the material is the responsibility of the members. I will try to answer questions. The enclosure "Anticipated questions" was included as these questions have already been asked, but may also, with other question, require further explanation. Water and Sewer Impact Fees, Rates and Agreements History (Sheet I of 4, Rev 7/22/13) In the early 1980s Kalispell, in conjunction with the then existing Flathead Regional Development Office, had a system in place for "growth to pay for growth". The precepts were documented in the Extension of Services Plan. There was also put into place a document called Standards for Design and Construction that was developed by the City in consultation with people engaged in the construction and development in the Kalispell area. At that time, by State law, parcels of land could not be annexed unless they were contiguous to the City, but they could use City owned utility systems that were then regulated by the Public Service Commission. The first "Developer Extension Agreement" was written for the Greenacres development outside the City limits southeast of Kalispell. It was written to allow connection of the area's sewerage system to the City's waste water treatment plant in case Kalispell's boundary ever extended southerly so that the expansion was not blocked by a large -lot subdivision due to the large area needed for each home's wastewater system. Such large area would be forever costly to maintain the infrastructure. i.e. it would have to be subsidized by the existing tax and rate payers. The document is recorded in Book 726 beginning on page 900. The first O&M/annexation agreement for an area northeast of Kalispell abutting Whitefish Stage Road was entered into with North Village Sewer District (NVSD) in 1982. This document allowed NVSD to connect to the Kalispell sewerage system at the top of the hill above Lawrence Park. But NVSD had to operate and maintain the system to the point of connection and provide pretreatment,, if necessary, so that the sewage entering the Kalispell system was equal to the same type of flows from Kalispell homes. (There was also an annexation stipulation). In the late 1990s (1) State legislation was enacted that allowed annexation of non- contiguous parcels and (2) the City staff began amending these two rather simple documents - Extension of Services Plan and ,Standards for Design and Construction - to morph them into what exists today under the same titles. In the early 2000s a Growth Policy was adopted and the "planning area" was extended west to Sheepherders Hill, east to the Flathead River, north to Church Drive and south almost to Somers. Two subdivisions were actually annexed, one near the northerly boundary and one near the southerly boundary of this huge Growth Policy area. The water and sewerage system extensions had to be oversized to serve the lands economically capable to connect to the extended utilities serving these remote areas. Results and Goals Apparently no planning went into setting aside replacement of these oversized utility lines in accordance with Policies of Meeting the Cost of Services in the Extension of Services Plan. The cost of O&M of large, nearly empty sewer lines; underused water mains and an oversized waste water treatment plant are now the City's "albatross". Currently there is confusion among users as to how the various regulations are being interpreted. The first step in bringing sanity to growth was to pull in the "growth" boundary lines. The Council accomplished this in March 7, 2011. The next step is to be sure the staff, Planning Board, Impact Fee Committee and Council are familiar with the terminology and function of each term. After terminologies are discussed by the Council, but before adoption, it is suggested that the definitions be posted on the website and noted with a news release. The final step would be Council approval and incorporating them into the Extension of Services Plan. Definitions with Explanations Pertaining to Water and Sewer Systems GENERAL The i ne person who submits a proposal to subdivide and provide all the required infrastructure on a parcel of land. The developer pays all fees for plan review and infrastructure installation and constructs all infrastructure in accordance with two documents: Standards for Design and Construction and Extension of Services Plan. The developer does NOT pay "impact- fees Builder: The person who submits a set of plan to construct a structure requiring utilities, anywhere in the City. The builder pays all Council approved building fees, including impact fees before the permit to build can be issued. Impact fees: a one time City-wide fee paid by the builder before construction can begin on a structure. The fees must be recommended by an appointed Impact Fee Committee of which recommendation the Council can approve, reject or adjust downward. State law prohibits the Council from establishing a higher fee than recommended by the Impact Fee Committee. Impact fee expenditure: By State law, the Impact Fee Committee is charged with the responsibility of recommending to the Council projects for which impact fees may be spent. By State law, the Council has the responsibility of placing projects on a Capital Improvement Program (CIP) with a 5-year specific time schedule for Council deemed urgent projects. The CIP needs updating annually. Replacement costs: All infrastructure has to be replaced due to wear, obsolescence,, increased maintenance,, changed conditions, etc. The Extension of Services Plan sets forth an estimated average time period for monies to be set aside for replacement of infrastructure elements. Some infrastructure must be replaced in 10 years while others, having the same characteristics, may not need replacing for 80 or more years. The amount to be set aside into a replacement account is included in the bi-monthlycustomer billies Rates: A varying bi-monthly charges to consumers for water and sewer volumes used. The varying is based on water meter readings which includes replacement costs ". The rates also include certain fixed charges as well as a seasonal "water sprinkling" rate adjusted from the meter readings during the irrigation season. If no adjustments were made, water that did not enter the sewerage system would be added to the bill at the sewer rate. Extension ofServices Plan: A "Plan7.5 originally written by the Flathead Regional Development Office for how services were to be provided by developers to extend municipal infrastructure to their proposed development. Kalispell was consulted and adopted the "Plan" Oversizing: A requirement by the City to increase the infrastructure installed by the developer to be larger that the size required to serve the development in order to accommodate future growth. The oversizing cost is determined by the difference of the in -place cost of the larger item required by the City less the in -place cost of the item the developer must bear that serves the development. Oversizing is paid to the developer from impact fees as impact fees become available. Upsizing: Within the City's existing infrastructure, some elements of the system must be replaced to a larger size due to growth expected. The difference of the in -place cost of an 2. upsized element less the estimated in -place cost of existing element is paid from impact fees as iMpact Lees become available. (If the existing element is newer than the time period stipulated in the Extension of ,Services Plan, a developer, if capsizing is needed, may have to pay for a proportional share of the in -place cost estimated for the existing element and a proportional share of the M*-place cost of the upsized element). In -place costs: means all items shown on a typical cross-section which includes trenching, bedding, piping and backfilling SEWER SYSTEMS Late -comer: Coined in 1981 to define persons or developers who connected to a sewer system, installed by a developer. When initially installed, ALL sewer systems have "excess capacity" available that can be used by others than the original developer. The minimum sizing of the infrastructure is related to manpower and equipment needed to maintain the system. (In the 1980s this term became "latecomer" — no hyphen). Excess capacity: The ideal economical situation is the a sewer system operate near capacity. Very low usage, particularly on initial installations can be costly to maintain due to deposition of solids if the velocity is below two feet per second. Hence "latecomers" connecting to the systems not only brings in usage funds, but it can reduce the cost of maintenance if some of this excess capacity is utilized. Developers can never expect a full return on the "excess capacity in the system they install" f Developer Extension Agreement (DEA): The initial DEA in July 1981 is recorded in Book 726,, beginning on Page 900 in the records of Flathead County. It was written because State law required any entity needing a sewer and treatment, situated within a certain distant of a municipal sewer, MUST connect to the sewer. This also applied to failed septic system. There was no stipulation in State law that required persons connecting to a municipal system to -pay their proportion share of that system. Hence, the DEA was written so they did pay for their proportional share if they connect to a new developer installed extension. The DEA expired in 10 years which period was deemed a reasonable length to eliminate potential (sometimes called) free loaders. Because the connection also had mutual benefits to the City, the City accepted the professional engineers certificate of completion to the State Department of Health and began the maintenance of the system Plat Encumbrance: Used for special situations. As an example: because the initial DEA was to serve property outside the City limits, the DEA stipulated that any properties connecting to the system had to have the Final Plat encumbered with a statement that all properties shown shall be assessed their proportional share for any assessment that properties inside the City limits had to pay for "improvements, modification and/or enlargement of the City sewerage system". (There were no impact fees at that time). Waiver of Right to Protest Annexation: Because the initial DEA was not contiguous to the City limits, by State law the property could not be annexed to the City. That law was changed in the 1990s to allow direct annexation even though the property was not contiguous to the City limits, i.e., it was a "remote area connection". Remote area connection: In 1982 there was a large area being developed that was in a rural special improvement district (RSID) known as the North Village Sewer District. The 3. developer approached the City about connecting to the City sewerage system, particularly the wastewater treatment plant (W'VTP). Because of the physical barrier of the Stillwater River, a cost analysis made this request very uneconomical for the City to maintain. Thus, a Sewer District Connection Agreement (SDCA) ensued which allowed the developer to connect to the City system at a point within the City limits and "waiver the right to protest annexation". The developer had to maintain the entire sewerage system installed to the point of connection within the City limits. This SDCA also contained other stipulation that the developer and the City must do at specified times and flows. WATER SYSTEM Insurance Service Organization (ISO)* The City has adopted the ISO's fire flow requirements which stipulates the volume of flow required for various size, type of construction, separation of structures,, etc. Many years ago the City began designation AREAS, generally by zoning and other requirements of the zone. code, and the volume of , in gallons per minute (gpm), being provided or will be provided to said designated areas Fire flow: It is the responsibility of the City to designate areas with the ISO required fire flow. It is the responsibility of a developer to insure that the area a builder may chose to erect a structure has the required infrastructure available to meet the ISO code. The builder installs the infrastructure from the City main to and into the structure. ALL lots must have infrastructure necessary to meet a flow of 1000 gpm. Commercial and industrial areas will probably require greater than 1000 gpm. (Note: the minimum fire flow rate was once 500 gpm so there are areas within the City which may not meet the City's responsibility today, but the upsizing is being done as finds permit). Equivalent Residential Units (ERUs) for non-residential structure's fire flow: This item has not been determined. It is suggested the Extension of Services Plan provide a method of determining the ERUs required for a non-residential area to be adopted by the Council. (See statement below). OTHER (intended as a suggestion, not a definition) Fire flow determination: A non-residential structure likely will require greater than 1000 gpm fire flow. There are many, many, many variables related to water system sizing to serve non-residential areas,, chief among which is the location of a high fire flow area with relationship to the water supply sources. Common planning was water reservoirs located centrally in the use area and wells on the periphery so (1) water could flow both ways thereby reducing the pipe sizes, (2) there was a second supply source if one source had problems and (3) if more than one well was needed for growth the other well(s) were far enough apart so one did not influence another during pumping. By the City staff designating "area fire flow" and best judgement being made upon annexation,, an individual structure impact fee formula can then be determined. ((With one ERU fire flow equal 1000 gpm: (ISO required fire flow)/1000 = structure's ERUs)). 9 Anticipated questions (1) Water and sewer impact fee account —how will it be administrated? Both the water and sewer impact fee accounts should have a reserve amount, much like the General Fund reserve. The amount of average reserve would be established based on an average annual amount since 2006. That period has included average, rapid and slow growth. The range of the reserve would vary from zero to twice the average growth. (See upsizing definition about available impact fees). (2) What would happen if a sizable development should occur that exceeds the capacity of the existing City sewerage system anywhere along the route from the developers extension beginning to the waste water treatment plant? There is still available a back log of approved subdivisions and lots which will generate impact fees for which the City's infrastructure is already adequately in place. There are some areas within the existing City infrastructure where upsizing may be necessary. If the City's infrastructure needing upsizing is over 30 years, the City installs the upsized piping that will accommodate the development proposed. A contractor, which may or may not be the developer, is paid by the City (a) for the estimated in -place cost of the replaced pipe from the replacement account plus (b) the extra amount to cover the next -size -larger upsizing from impact fees. It must be noted that any new development (a) takes at least two years from the time of developer's application to the filing of the Final Plat plus (2) at least another year or more until there is a significant amount of build -out to need upsizing. (3) If an existing pipe is over 30 years old and needs upsizing due to anticipated growth, who pays for the upsizing if there is no project pending? If the existing infrastructure is already near capacity, as determined by actual measurements,, a one -size -larger pipe should be installed. The replacement account pays for the estimated in -place cost of the existing pipage and impact fees pays the remaining cost of the next -size -larger in -place pipage. With no pending project for a line nearing capacity, judgement of the staff has to be the criteria used for timing of such replacement/upsizing projects on the CIP listing. (4) If a very large phased development is proposed that will (a) exceed the City's existing infrastructure and (b) the City's infrastructure must be extended to the development, who pays the costs involved? Three different sources are involved: (al) the City's replacement account pays to replace the existing City pipage, (a2) the City's impact fee pays for the remaining upsized pipage and (b) the developer pays the cost of the extended pipe sized for the development. If the City requires the extension to have pipage larger than needed for the development, the City's impact fees pay for the oversized portion. Again it must be noted that large developments are usually phased. The ClP for replacement and upsizing must be geared to the time of need of the upsized pipage. It also is essential that the developer is aware of the definition of oversizing and upsizing geared to the availability of impact fees.