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4. Storm Drainage and Street Assessment Study�a City of Kalispell Public Works Department Post Office Box 1997, Kalispell, Montana 59903-1997 - Telephone (406)758-7720, Fax (406)758-7831 MEMORANDUM March 19, 2002 To: Mayor, City Council and City Manager From: James C. Hausz, PE, Director of Public Works/City Subject: Storm Drainage and Street Assessment Study SUMMARY Over the past few years, usually in response to requests from concerned citizens, there have been periodic re-examinations of the City's method for assessing storm drainage fees. The concerns raised have centered on the perceived inequity and adverse financial impact of applying the storm drain assessment to large vacant parcels. Similar concerns have been aired about the City street assessment. On each of these past occasions the result of the evaluation has been no change by the City Council to either assessment method. At the request of the City Council we have once again evaluated the storm drain and street assessments to determine whether an alternate approach can be identified. The current evaluation has determined that large vacant parcels do not impact either storm drain or street maintenance costs in direct proportion to their size. But they should nonetheless shoulder some fair share of these costs. The rationale is that as development increases, the cost impact also increases. Similar thinking supports refinement of the assessment method for residential parcels with the result that assessment size caps are recommended for vacant land and residential parcels of two acres and one-half acre, respectively. This recommendation is the same for both storm drain and street assessments. For storm drain assessments, the recommended changes are to set the aforementioned size caps and then refine the four rates as shown in Table 1 to maintain a revenue neutral environment that more fairly distributes assessments among the properties that generate the maintenance costs. For street assessments, the recommended changes are to abandon the single rate system and to adopt a four rate system similar to storm drainage. Size caps of 2 acres and one-half acre for vacant and residential parcels, respectively, are recommended and revenue neutral rates are proposed in Table 2 that fairly distribute assessments among the properties that generate the maintenance costs. APPROACH — STORM DRAIN ASSESSMENTS Current storm drain assessment methodology involves the application of one of four assessment rates to properties falling into four broad categories. The guiding philosophy of this approach is that with ascending levels of development there are corresponding increases in the storm drainage impacts, and their costs to mitigate, that are attributable to the parcel. In other words: the greater the area of the parcel that is covered by development, the greater the storm water runoff from the parcel. Current assessment rates are: Category 1 $.001374/square foot Category 2 $.002747/square foot Category 3 $.004121/square foot Category 3 $.005494/square foot Category 1 is applied to undeveloped vacant property. Category 2 is applied to residential property. Category 3 is applied to developed property that covers 90% of the parcel. Category 4 is applied to developed property that covers 100% of the parcel. Table 1 shows the rates, square footages and current revenue generated by each category. The often -stated problem with this assessment method is the adverse financial impact on large undeveloped parcels in category 1, even though the assessment rate is the smallest of the four. The current perception is that the large financial impact acts to dissuade property owners from annexing into the City, foregoing the other benefits of annexation in order to reduce their property tax bill. In general, the current four -rate assessment method acknowledges the differences between properties developed to different degrees, but it will benefit from further refinement. The last analysis of storm drain assessments (1997) considered the possibility of capping assessments for large undeveloped parcels to the value calculated for a 2-acre parcel. While attractive and workable, this refinement was not implemented by the City Council. For the current evaluation, the idea of capping assessments is once again considered and broadened to include capping assessments for residential parcels (category 2) to a maximum of one-half acre. The rationale behind this is to more accurately differentiate between the storm drain impacts that derive from parcels in the four categories. It is now generally believed that large undeveloped parcels do not uniformly have an impact on the system that increases linearly with the increase in parcel size. In many cases it is possible for large undeveloped parcels to provide a moderating influence on storm water flows that benefits the City's storm water management program In this same vein, the storm drain impact from residential parcels is also viewed as not linear to the increase in size. The proportion of covered area versus size of parcel typically declines for residential properties as their size increases. This is not true with parcels in categories 3 and 4, commercially developed properties with 90% and 100% coverage, respectively, where increasing the density of development significantly increases the storm water runoff from the parcel. In addition, there are many areas where large -lot residential properties may be candidates for annexation. In many cases these large lots are necessary to accommodate on -site sewage systems. The one-half acre size limit was selected to coincide with the minimum size requirement that once existed when these residential areas were originally platted. Capping residential assessments at one-half acre will prevent these parcels from being penalized for conforming to the rules in place at the time they were platted. (The current minimum parcel size for on -site sewage disposal systems is one acre.) Setting size caps on parcels in categories 1 and 2 results in a reduction of revenue totaling approximately $28,467. In order to recapture this revenue and fairly and equitably distribute costs to the properties that impose these costs on the system, rates for categories 3 and 4 must be revised upward. Table 1 shows the result of these proposed changes. As shown, categories 1 and 2, reflecting size caps of 2 acres and one-half acre, respectively, result in assessments of $119.70 and $59.83 for these two situation. Categories 3 and 4 show increased revenues of approximately $30,145 that are commensurate with their actual impact on the storm drainage management problem. Total revenues are approximately the same as under the present system with the small difference attributable to rounding at four decimal places. APPROACH — STREET ASSESSMENTS The current approach to street assessments is to apply one rate per square foot to all properties regardless of their level of development. The current assessment rate is $.0055 per square foot and generates $518,170.03. This is basically a one -size fits -all approach. The rationale behind this method is that there is no change of impact on street maintenance from increasing levels of development. We believe this premise is wrong. Clearly, there is an increase in storm drainage impacts with increasing levels of development. We believe this same logical relationship exists with street maintenance. A vacant parcel does not contribute to the maintenance burden the same way a 100% developed commercial parcel contributes to that burden. Each categorical distinction in the storm drain assessment approach can be found with street maintenance. As developed density increases from vacant undeveloped land up to 100% developed commercial land, the maintenance burden increases directly with the rise in density and traffic volume. With vacant land, the bulk of the maintenance burden is typically due to vehicles passing by the vacant parcel rather than originating from the parcel. With higher density development the increased level of normal street maintenance, i.e. patching, striping, crosswalks, signs, traffic signals, is due to the concentration of traffic in commercial areas. This relationship is not acknowledged in the current assessment formula and accounts for the recurring perception that large vacant parcels are inequitably burdened by large and inappropriate street assessments. Therefore, it is proposed to modify the street assessment method based on the approach taken with storm drainage assessments. This will require four rates for parcels falling into one of four discreet categories of development that mirror the storm drain methodology. Further, this approach also proposes to cap assessments of vacant land and residential properties at 2 acres and one-half acre, respectively, for the same reasons outlined for storm drain assessments. The intent of this approach is to be revenue neutral and to distribute assessments fairly and equitably among properties in general alignment with their impact on street maintenance. The results of this reevaluation are detailed in Table 2. This table shows the current collection rate and total assessments collected. It also breaks down the current total into four categories of development for easier comparison to the modification proposal. As the proposed rate schedule in Table 2 shows, categories 1 and 2 reflect size limits of 2 acres and one-half acre, respectively. Size -limited assessments of $229.90 and $114.98 are proposed for two -acre and one-half acre parcels, respectively. This results in a reduction of approximately $141,962 collected from categories 1 and 2. Categories 3 and 4 show increased revenues of $142,578 that are commensurate with their actual impact on street maintenance. Total revenues are approximately the same as under the present system with the small difference attributable to rounding to four decimal places. RECOMMENDATION Based on a review of both storm drainage and street maintenance assessment rates and formulas with the intent of correcting long-standing assessment problems affecting large vacant parcels, and to establish a fair and equitable assessment formula that distributes costs to areas that cause those costs, Public Works recommends the following revisions of storm drain and street maintenance assessment policies. • Storm Assessment: Retain the four rate structure; set caps of 2 acres and one-half acre for vacant and residential properties, respectively, and revise the rates to maintain a revenue neutral environment. The rates should be as follows: Category 1 Vacant Land Category 2 Residential Category 3 Commercial 90% Category 4 Commercial 100% $0.0014 per square foot $0.0028 per square foot $0.0055 per square foot $0.0069 per square foot • Street Assessment: Abandon the single rate formula and adopt a four rate structure patterned after the storm assessment formula; set caps of 2 acres and one-half acre for vacant and residential properties, respectively, and set the rates to maintain a revenue neutral environment. The rates should be as follows: Category 1 Vacant Land Category 2 Residential Category 3 Commercial 90% Category 4 Commercial 100% $0.0026 per square foot $0.0053 per square foot $0.0106 per square foot $0.0133 per square foot Implementing these changes will result in storm drainage and street maintenance assessment formulae that are logically based, fair and equitable in their administration, easy to understand and defendable if challenged. 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