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11-14-11 CC WS Agenda CITY OF SHOREWOOD 5755 COUNTRY CLUB ROAD CITY COUNCIL WORK SESSION COUNCIL CHAMBERS MONDAY, NOVEMBER 14, 2011 6:00 P.M. AGENDA Attachments 1. CONVENE CITY COUNCIL WORK SESSION A. Roll Call Mayor Lizée ____ Hotvet____ Siakel ____ Woodruff____ Zerby ____ B. Review Agenda 2. WATER CONNECTION FEE Administrator’s memo 3. ADJOURN CITY OF SHOREWOOD MEMORANDUM TO: City Council FROM: Brian Heck, City Administrator CC: Bruce DeJong, Finance Director Larry Brown, Public Works Director; DATE: Wednesday, November 9, 2011 SUBJECT: Water Connection Policy Discussion The City Council visited the water connection policy back in June of this year following a request by a property owner asking for consideration in lowering the connection fee. The property owner’s home along Smithtown Road had access to the water. The City did not assess the property when installing the water main down Smithtown. The thought at the time was that the property would pay the assessment when the City extended water down the side street. As a result, the connection charge for this parcel is $10,000 and the owner believed this cost to be too high and requested the Council to reconsider the connection charge. The Council directed staff to prepare additional information on the history of the water connection fee policy including information on the 20 year water plan prepared in the mid 1990’s, costs to develop the system, and number of potential connections. Current Situation The existing water system is designed to provide water to all mainland parcels in the city. There are presently 3006 parcels in the city including property such as parks, municipal facilities like well houses, government buildings, and unbuildable outlots. This number specifically excludes Shady Island and Enchanted Island and all of the other island parcels in the city. There should be enough pumping and storage capacity in the existing wells and towers to serve all 3006 parcels. There are 1,420 parcels connected to the water system, which comprise 47% of the potential parcel count. There are 272 parcels that abut an existing trunk or lateral water line but are not currently connected. The remaining 1,314 parcels do not have water service available at this time. Additional parcels may be created in the future through the subdivision process available to larger existing lots or through a combination/redivision process when multiple parcels are involved. The City’s investment in the water system includes the Boulder Bridge well and well house, Badger well and well house, Silverwood well house, filtration plant, Amesbury well, two water towers, and several miles of water main. The City’s investment in the identified system-wide infrastructure is $3,359,057 as shown on the attachment labeled City Installed Infrastructure. Dividing the $3,359,057 system-wide cost by the existing 3,006 lots yields an infrastructure cost of $1,117 per connection that has been borne by the system in anticipation of future connections. . Current Policy The policy in place requires a property owner to pay $10,000 to connect to the water system. Depending on the situation, part of the $10,000 may be paid through an existing special assessment for the extension of the service with the balance of the $10,000 less the assessed portion being paid at time of connection. Alternatively, the entire amount could be paid via the connection charge with no additional charges assessed at the time of connection. In the case of a property that was not assessed at the time of service extension, the property owner pays the full $10,000. The rational for the $10,000 is based on the average cost to extend water to a given area as estimated by the 20 year plan developed in the 1990’s The current charge does not include the investment in the system, which in most cases, is what makes up the connection charge. The bottom line for the existing policy is that everyone pays the same amount regardless of method, i.e. special assessment, direct connection charge, or combination of both methods. Some parcels have paid an assessment higher than $10,000 for the extension of trunks or laterals to serve their property, which means that they have connected to the water system with no contribution toward the system-wide infrastructure. Options There are a few ways the council can address this policy issue. Staff outlined these possible options below. 1) Status quo. The first possibility is not changing anything. The decision to extend water is generally left to the will of the residents along the street where the Council is considering an extension. Residents along the street cover the cost of the extension via special assessment. Connection to the system is $10,000 less the amount assessed and owners are not required to connect to the system. Residents can also appeal to the Council to be exempt from the special assessment. Anyone of the 272 existing properties that have access to a service line pay the $10,000 less prior payments made via special assessment. Homeowners can choose to special assess the entire $10,000 so when they choose to connect there is no additional cost. This continues the policy that all property owners are treated the same. 2) Flat $10,000 Connection fee, no special assessment. The second possible policy position the Council can consider is a flat $10,000 connection charge. In this scenario, anytime a street is reconstructed, water is extended and stubs placed at each property. There is no special assessment for the placement of the line and property owners are not required to connect at the time of installation. When a property owner decides to connect to the system, they pay a $10,000 connection fee. The property owner could request the connection fee be applied to their property tax as a special assessment. All property owners pay the same amount and the charge covers the cost of the system at the 1990’s average cost of the extension. The 272 properties not connected to the system pay $10,000 or fraction thereof based on any previous assessment paid, similar to the policy currently in place. The Water Fund will then pay any additional amount over the $10,000 revenue with no additional charges to the homeowner. 3) Flat Connection fee, special assess extensions. The third possible policy to consider creates two separate fees: the connection fee, based on the cost of the system, and the extension fee, the cost of extending the service to the properties. Under this scenario, when the council decides to extend water service all property along the service line pay for the installation through special assessment and no exemptions provided, unless the property already paid a special assessment. The property owner chooses to connect at the time of construction, or connects at a later date. The connection fee becomes a flat fee based on the cost to develop the water system. The cost to the city to develop the system was $3,359,057. Spread across the 3,006 available parcels, the cost per parcel for the system is $1,117 and this becomes the connection fee. Under this policy, the 272 parcels with access but not connected, would be charged $1,117 to connect regardless of prior amount paid. There is no other system-wide infrastructure since the full cost of the project was paid by assessments at the time it was installed. The reason for this is that the council, at the time the extension went in, exempted these properties from paying for the cost of the extension. The obvious downside to this option is, while the cost of connection is the same for all parcels, the properties that abut existing lines would not be paying anything for the extension of that line. This may not seem fair to property owners who paid either the assessment and haven’t hooked up or the $10,000 full cost when they connected. General Comments Positive outcomes under the first option are all properties are treated equally. Everyone pays $10,000. The justification for the charge comes from the “average” cost experienced to extend the water service, but does not necessarily take in to consideration the system costs. If costs have increased since the original study was performed then few parcels will pay in toward the system-wide costs. Residents choose to connect and, in some cases, appeal to the council to have the special assessment waived. On the downside, this policy appears to meld a couple of statutes providing the city authority charge for the service. On the one hand, we special assess part of the extension for the service under MS 429. The balance, if there is any, is treated as a charge under MS 444. The potential problem comes in determining if the “connection” charge is reasonable and just. Under the current policy, some property owners may be underwriting the system costs due to a lower cost to extend the service. An example of the current “connection” charge follows, the charge for property #1might be $1,000, for property #2 $5,000, for property #3 $10,000, and for property #4 $0.00. In the end, all may pay the full $10,000, but is the “connection” fee considered reasonable and just if each property pays a different amount? The second policy position provides general “fairness” to the system in that all properties pay $10,000 (or some other fixed rate based on cost to extend the service and system development costs). The other positive is no special assessment for the extension of the service. Property owners have the option to connect, as they do now, but when connection is desired, each owner pays the same fee. As with the above, one of the major downsides to this option is the amount of the fee. The fee needs to be established such that it reasonably covers the cost of extensions and the cost of the system. We know the cost of the system, $1,117. Extension costs may vary, so an updated average needs to be determined. Under this option, some owners will necessarily subsidize others. The third policy position is not “fair” in terms of total cost to connect to the water system as some property owners may pay a total of $7,117 to connect while other property owners may pay $13,117. What is consistent is that all parcels pay the actual cost of the water system infrastructure. In addition, those that have access to water may end up paying substantially less than those who connected under the current policy. Under any of these circumstances, the Council should consider a policy prohibiting the issuance of permits to drill new wells for properties that have access to city water. These properties should be required to connect. Questions to Consider There are a couple of questions council needs to consider in relation to this policy.  What is the goal or objective?  Should the city encourage owners to connect?  Should water be extended city wide?  How does the council want to ensure “fairness” and defend the just and reasonableness of the connection charge? Attachments  February 2010 memorandum from Brad Nielsen on History of Water policy;  Legal Opinion on current policy from Tim Keane;  City infrastructure cost;  Water connection map;  Updated 20 year plan. City of Shorewood Water Utility System City Installed Infrastructure DescriptionInstalled byServesDateAmount Boulder Bridge Vertical Turbine WellCityOverall System1980$ 95,800 Boulder Bridge Well HouseCityOverall System1980 159,865 Badger Field Vertical TurbineCityOverall System1980 49,656 Badger Pump House OrignalcityOverall System1980 103,458 Badger Pump House ReconstructCityOverall System1998 514,201 SE Vertical TurbineCityOverall System1987 92,815 SE Area Well HouseCityOverall System1987 168,501 SE Filtration PlantCityOverall System1991 400,132 SE Well Controls WellCityOverall System2004 48,674 SE Well Controls Filter PlantCityOverall System2010 21,555 East Water TowerCityOverall System1987 463,100 West Water TowerCityOverall System1996 1,021,287 West Water Tower ControlsCityOverall System1996 46,789 Amesbury Submersible WellCityOverall System1982 43,224 Amesbury Well ControlsCityOverall System2007 130,000 Total Infrastructure Investment$ 3,359,057 Number of Parcels - omitting island parcels 3,006 Per Parcel Amount of Infrastructure Cost (connection fee)$ 1,117 ïïñïï ïïñïï ¼»¬¿¼°Ë ôçðñç ò¬°»Ü »½²¿²·Ú ¼±±©»®±¸Í 滽®«±Í ¬²»³¬®¿°»Ü ¹²·²²¿´Ð ¼±±©»®±¸Í ÷ðîìïø ­²±·¬½»²²±Ý ®»¬¿É §¬·Ý ¬»»Ú ÷îéîø »´¾¿´·¿ªß ®»¬¿É §¬·Ý ðððôìðððôîðððôïð q ­²±·¬½»²²±Ý ²·¿³®»¬¿É ®Ü ©»·Ê ¼²±Ð î »²¿Ô µ®¿Ð ï »²¿Ô §´´±Ø »²¿Ô ½¿´·Ô ê ®Ì º¿»Ô µ¿Ñ »ª±Ý ¿·²·¹®·Ê ï »ªß ®·Ý §»´²·µ½Ó ê »´°¿Ó î ¬Ý ¬«²¬­»¸Ý ë ë ì ®®»Ì ¬«²¬­»¸Ý ì ®·Ý ®»¼´«±Þ ®·Ý §»²¬·¸É í í ¬Ð ¬®»¾´Û î î ¿Ô ²©±¬¸¬·³Í ¬Ý ²±¬¹²·ª±Ý ï ï ªÝ »¬¬»´´·Ù ¼¿±Î »¼·­¼±±É ®Ü »²·­´»Ò ¿Ô ¼±±É §»´´¿Ê ®·Ý ¼±±É §»´´¿Ê î ï ®·Ý ¹²·®°Í ï ì ï »ª±Ý íî ¼»¬²¿¸½²Û ï ®·Ý ¼²¿´­× §¼¿¸Í ì ®Ì ¼²¿´­× §¼¿¸Í í ¬Ð ¼²¿´­× §¼¿¸Í î ÜÑÑÉÛÎÑØÍ ÚÑ ÇÌ×Ý