3. Extension of ServicesCity of Kalispell Public Works Department
Post Office Box 1997, Kalispell, Montana 59903-1997 - Telephone (406)758-7720, Fax (406)758-7831
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REPORT TO: Mayor and City Council
FROM: James C. Hansz, P.E., Director of Public Works
SUBJECT: Cost Share Options, Utility Main Extensions
MEETING DATE: February 17, 2004
The issue of utility extension cost sharing with developers for the cost to install water and sewer
mains that serve their developments has been discussed with City Council many times in the past. The
most recent discussion this past fall was initiated by Public Works in order to affirm the validity of our
interpretation of current policy that requires development to pay the cost of installing utilities required for
the project. At that time the City Council reaffirmed its position that development was intended to pay the
cost of extending facilities needed for meeting its utility needs. It also affirmed that Council intent was
and remains that development pays its own way and development costs should not be shifted to
neighboring properties or subsidized by the ratepayers. further, in line with current policy, Council
clearly indicated that costs paid by a developer above those necessary to serve the development were
eligible for cost sharing or reimbursement. Cost sharing or reimbursement is possible in three ways that
are consistent with current extension of service policy. A copy of the relevant sections of the extension of
services policy is provided as reference. The three established reimbursement methods are as follows:
1. Excess costs of capacity needed to serve future growth can be paid directly by the City when
funds are available.
2. Excess costs can be funded by the developer and reimbursed by the City from connection fees as
they are collected.
3. Excess costs can be reimbursed by neighboring properties if/when they seek to connect to the
extended main.
These three methods of reimbursement are fairly standard and used by utilities across the country.
Pages 20, 21, and 22 of the extension of service policy detail the general requirements and provide the
guidelines followed by staff when dealing with developers. Page 20, in numbered paragraphs 2 and 3,
detail the requirement for developer payment of costs related to serving the development.
Pages 21 and 22, paragraphs 2 through 6, detail the City's policies for meeting costs of service and
include the three cost reimbursement approaches listed above. Further, paragraph 3 specifies that the City
must shoulder the cost of increasing the size of existing systems, but the developer may be asked to pay
February 17, 2004 utility main cost share -doe
on the City's behalf and then be reimbursed. Paragraph 4 outlines the concept of developer extension
agreements for reimbursable costs to be paid by properties on a pro-rata share of cost basis. Paragraph 6
defines the term "pro-rata share" for apportioning costs between properties. Paragraph 5 specifically and
unmistakably specifies that the City must pay the developer for any City required up -sizing of facilities.
The foregoing outline encapsulates the City's current policy goals of
1. Expecting development to pay its way and sheltering ratepayers from these costs.
2. Using City funds to cover the added costs to enlarge facilities to accommodate growth.
3. Providing for reimbursement to the developer when City funds are not available.
The question at hand is whether these policy goals remain appropriate in an enviromnent where developer
expectations are that Cities should offer some form of subsidy to ensure that growth takes place within
municipal jurisdictions with higher standards rather than in the County where standards, costs, and
expectations are lower. If subsidies are to be offered then there is really only one option., with many
permutations, available. (It should be clearly understood that any subsidy to be offered is at the expense
of the ratepayer.)
Typically the sharing of developer's costs is an agreement between the City and developer. Some
portion of the developer's service extension costs are agreed to be paid by the City and rationalized as a
cost .necessary to serve and/or promote orderly growth. These City -share costs are typically paid from
SDC fees. Eventually this cost would be shouldered by new users at the time their new service connection
is made and their SDC fee is paid. At that point all new "ratepayers" buy into the system by paying their
fair share of the cost to replace the capacity in the existing system that serves them.
If, for example, one-half the developer's project cost is to be reimbursed then a portion of this
amount would be either added to the SDC fee paid by new connections onto this extension, or rolled into
the next general revision of the SDC fees to be paid for any new connection anywhere in the City. The
SDC fees from new users would either repay the City, assuming the one-half share was paid by the City
up front, or paid out to the developer over time.
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February 17, 2W4 utifity main cost sharc.doe
2. Where construction of a sewerage system is being considered,
the future drainage basin of the system should be identified ands
lines sized accordingly. The,cost and construction of all sewerage'
systems are the responsibility of the developer or property owner.
Under certain circumstances, the City Council will determine;
whether the City will participate in financing the oversizing of
infrastructure.
3. It is the responsibility of the developer or property owner to'l
have designed and constructed water mains and lines of adequate=
size to provide the required flows for the intended land use and,
fire protection.
4. it is the responsibility of the developer or property owner to
provide all required infrastructure improvements, including rights -
of -way, roadways, and easements.
POLICIES FOR SERVICES IN EXISTING DEVELOPED AREAS
As a general policy, properties within the service area that have
existing utilities and facilities shall be required to upgrade
those improvements to City standards and specifications as a
prerequisitb to receiving City services or additional City utility
services. in such situations, the following policies shall apply:
1. Prior to making the municipal service(s) available to an.
existing developed area within the service area, the City may
require a report describing the following:
a. The approximate year or period in which the existing area was
developed.
b. The location, size and condition of existing water lines or
systems.
c. The location and condition of. the existing sewer system,
including the size, material and grades of all pipe.
d. The size, location and legal purpose of all existing rights -of -
way and easements.
e. The surface type, condition and width of all roadways.
f. The existing storm drainage into and out of the area.
The report shall also include the estimated costs associated with
correcting the deficiencies and bringing the utility or improvement
to City standards. The City may require such a report to be
prepared by a professional engineer, with the cost of the report
borne by the developer or property owner.
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2. If the property is to be annexed, the City's annexation
ordinance or resolution shall specifically state the method and
-tune frame for bringing the existing conditions into compliance
with City standards, and shall identify the parties responsible for
the improvements.
3. If City services are to be extended without concurrent
annexation, the property owner shall sign a Consent to Annex/Notice
of withdrawal from Rural Fire District and a Petition Requesting
Annexation. Both the petition and the waiver shall be recorded
with the County Clerk and Recorder's Office. The property owner
shall also sign, and the City shall record, a waiver of the rig
to protest participation in and the formation of any sped
;ft
improvement district that may be formed to improve the existing
services, utilities, streets or other improvements.
POLICIES OF MEETING THE COST OF SERVICES
1. For the purpose of setting
components of the physical plant,
as the estimated life of each of
a. Structures -
30
Years
b. Pipelines -
30
Years
C. Stationary Equipment (motors,
-
20
Years
d. Asphalt Surfaces:
Local Streets -
20
Years
Collector St. -
15
Years
Arterial St. -
10
Years
aside adequate funds to replace
the following shall be considered
the components:
pumps, conveyors, etc.)
The amount to be set aside each year for the replacement of
municipal infrastructure components shall be the cast of
construction, if new, or the total estimated replacement cost
divided by the remaining• number of years of the life of the
component.
2. It shall be the responsibility of the developer or property
owner to extend all roadways and utilities from the existing City
facilities to the site of development in accordance with all City
standards and specifications or. provide appropriate easements. It
shall further be the responsibility of the developer or property
owner to construct all streets and utilities to the furthest
boundary of the property to be developed in order to facilitate
future development.
3. The ability of the City to increase existing utility line
capacities to meet the demands of growth is dependent upon the
availability of funding. if the City's ability to finance the
necessary enlargement cannot keep pace with development, or if the
improvements schedule does not mesh with that of the developer, it
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shall be the responsibility of the developer to finance and
construct City -approved alterations to the existing infrastructure
sufficient to accommodate the development. In the event of this -
occurrence, the developer may be reimbursed by the City through
utility service connection fees for said development. Said
reimbursement shall not exceed the cost, including interest, of the
improvements to the existing City system, nor shall the
reimbursement exceed the value of the connection fees collected
from the specific development.
4. If the developer bears the costs of extending services and/or
utilities, a Developer's Extension Agreement may be entered into
between the developer and the City. This agreement, with a term
not to exceed ten (10) years,' allows the developer to recoup costs
associated with the extension of services or utilities by charging
future entities wishing to connect to or use the extended service
or utility a "Latecomer's Fee". The Developer's Extension
Agreement shall set forth the specific parcels which could benefit
from the extension (those within a described "design area") and
specify the amount to be assessed to each parcel. The specific
parcels and assessments to be included in the Developer's Extension
Agreement are subject to approval by the City Council.
The late -coming customer shall pay the extender a pro-rata share of
the extension costs, including design and inspection fees. The
pro-rata share may be based on .lot area, front footage, or other
means agreeable to both the City Council and the developer which is
equitable to both parties as well as future customers.
5. If the City requires the customer or developer extending a
sewer or water line to install a larger size than that required by
City standards for a particular project, the City shall pay the
difference in cost between the two lines.
6. The City reserves the right to further extend sewer or water.
MAINS installed by the preceding developer or property owner
without paying compensation. The City also reserves the ,xlight, to
charge future sewer or water utility. users beyond those areas
identified in the Developer's Extension Agreement, if applicable,
for their pro -rated share of the City's cost for the oversizing.--of
he Jine. This in no way shall diminish the preceding developer's
right to collect SERVICE LINE connection fees within the limies of
a Developer's Extension Agreement. In the case of water lines, the
pro-rata cost shall be ba,sed on the domestic capacity plus fire
flow capacity existing at, the point of extension as opposed to the
domestic plus fire flow capacities required by the development.
7. . Financing the construction of new streets in a proposed
development, or the upgrading of streets in an existing developed
area, shall be accomplished in one, or a combination of, the
following methods:
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