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031306 CC WS Min CITY OF SHOREWOOD CITY COUNCIL WORK SESSION MONDAY, MARCH 13,2006 5755 COUNTRY CLUB ROAD CONFERENCE ROOM 8:00 PM or immediately following Regular Council meeting MINUTES 1. CONVENE WORK SESSION MEETING Mayor Love called the meeting to order at 7:36 P.M. A. Roll Call Present: Mayor Love, Councilmembers Callies, Lizee, Turgeon, and Wellens; City Attorney Keane; Administrator Dawson; Finance Director Burton; and Director of Public Works Brown Absent: None B. Review Agenda Without objection from Council, Mayor Love proceeded with the Agenda for the meeting. 2. CAPITAL IMPROVEMENTS AND BONDING FOR THE WATER SYSTEM Administrator Dawson explained bonds were issued in 2005 based on estimated project costs. Once the design phase for some of the projects had been completed and project costs refined, it became apparent the bonds that had been issued to fund the projects would not be sufficient. Therefore, Council would need to determine which of the projects should be done based on the available bond funds. He also stated additional financing would need to occur for the interconnection of the Southeast and Amesbury systems. Director Brown stated KLM Engineering, a consulting group that specialized in well rehabilitations, thought it was time to do the SE Area Water Tower Rehabilitation and Painting project, but they did not think it would be a serious problem to delay the project for two years. Brown explained due to the increase in costs for some of the other projects, Staff recommended delaying the SE Area Water Tower project, thereby freeing up bond funds for higher priority projects. Brown eXplained the "SE Area - Amesbury Water Interconnection" was currently under design, and was scheduled for construction this spring. The project had been proposed in the 2007 Capital Improvement Program at the time of the bond sale. The Parkview Crossings subdivision project was the impetus for moving this interconnection project to the 2006 season in order to capture the connections for this subdivision. He also explained it had been premature to discuss additional bonding for the SE/ Amesbury Water Interconnection and Parkview Crossing Development at the time the 2005 bonds had been issued. Brown explained the preliminary estimated cost for the interconnection was approximately $888,000. He stated Staff would provide Council with the estimated cost breakdown at a future Council Meeting where it could consider another bond issue for that project. CITY OF SHORE WOOD WORK SESSION MEETING March 13, 2006 Page 2 of 10 Director Burton stated Staff and the City's bond consultant had a preliminary estimate of a $1 million dollar bond that would be issued. She explained with a IS-year pay-back schedule, the estimated yearly payment would be $90,000 - $100,000 a year. She then stated there were approximately 1,260 users and the bond would increase their rates by an estimated $80 per year. She also stated she was in discussions with the City's bond consultant with regard to refinancing the existing City water debt which would level out the debt service payments, rather than have larger payments in the earlier years. She noted there would be additional interest costs if the debt was refinanced. In response to a question from Councilmember Wellens, Director Brown explained the costs for the Woodhaven Well Interconnect project for bonding were based on a budget figure from Excelsior; as that option failed and water from Chanhassen was being pursued, the figure shown was the connection fee stated in Chanhassen's ordinance. He stated the negotiations were still in progress and he thought it was still possible to reduce the connection fee. 3. WATER EXTENSION AND CONNECTION POLICY Administrator Dawson stated there had been a fair amount of discussion and confusion with regard to the City's water policy and ordinance, what the City's practices were in the extension of City water, and the property owners' costs for City water. He then stated a document that had been distributed to the Wedgewood/Mallard/Teal neighborhood about the possibility of installing City water in conjunction with the street reconstruction project, contained some misstated information. Administrator Dawson stated the March 9, 2006, Water Extension and Connection Policy and Practice memo from Staff to Council was intended to clarify the City's policy and practices (as explained in the details of the memo on file). He explained that for each of the four scenarios for extending City water, which are specified in the City's ordinance, there was a special assessment to cover the cost of the new watermain. He then explained there was also a connection charge to the property owner when the owner applied to receive City water (the current connection charge was $10,000), and the purpose of the connection charge was to fund the parts of the water system other than the watermain. Dawson explained the property owner received a credit on the connection charge for any assessments they had previously paid for the installation of a watermain. He noted the property owner was responsible for all of the costs of placing a water line from his/her house to the City's water valve in the right-of-way. Dawson clarified the interconnection of the Southeast Area water system and Amesbury's was an improvement to the City's whole water system; therefore, no special assessments are proposed to be made against property owners along the length of the new watermain. He stated property owners who choose to connect, however, would pay the full connection charge at the time they decided to apply for City water. Director Brown commented there had been a minimum of three versions of the water connection and extension ordinance during his almost II-year tenure. He stated the volume of the ordinance was cumbersome and confusing. He explained Staff was preparing a "reader friendly" Municipal Water Brochure to help clarify the City's water ordinance and associated practices. He then explained there were three types of water projects: City-initiated projects; developer-initiated projects; and petition- projects. Councilmember Turgeon explained she thought she understood the City's Water Extension and Connection Policy and Practices, but when she received the document that had been distributed to the Wedgewood Drive/Mallard Lane/Teal Circle neighborhood she questioned her understanding. Hence, she asked the topic be put on the Agenda. She suggested Council simplify the City's water policy, and clarify what constitutes a connection, and expressed her appreciation to Staff for the clarification memo. CITY OF SHORE WOOD WORK SESSION MEETING March 13, 2006 Page 3 of 10 Mayor Love stated the City's policy, which had been put in place ten years ago, essentially prevented the City from preparing any estimate for the cost of water. He went on to state councils had been extremely sensitive to the political differences that exist within Shorewood with regard to City water. He stated Council must determine a method for providing City water that is either guided by the City's ability to provide City water at times of opportunity, or by allowing property owners to obtain access to City water based on their desire for it. He asked Council to move to Item 5 on the Agenda. Discussion continued. Prior to moving to Item 5, Councilmember Callies asked Staff to clarify their suggestion stated in the memo. "Council may wish to consider a policy of assessing the full connection charge, if it is greater than the cost of the improvement, at the time of assessment for the watermain improvement." Administrator Dawson explained Staff would need to track the property owner's assessment for a watermain over time. He stated assessing the $10,000 for the watermain installation at the time of the project would be easier to administer, and when the propeliy owner wanted to connect to City water there would not be an additional charge. Councilmember Wellens stated he did not think that would be fair to the individuals that did not want City water. Councilmember Callies then asked Staff if she understood the current policy correctly - if the watermain assessment was greater than the $10,000 connection charge the property owner would in effect pay no connection charge. Administrator Dawson stated that was the current policy. Callies stated she did not believe that was equitable. Councilmember Turgeon stated she understood there would only be a connection charge ifthe watermain assessment was less than the amount of the connection charge. Administrator Dawson stated that was the current policy. Discussion ensued with regard to assessments and connection charges, and how they were determined under the current policy. Councilmember Callies stated the current policy increased the City's costs because fees for the full water system were not, in effect, charged if the watermain assessment was greater than $10,000. Mayor Love stated because Shorewood was no longer a developing City with future projects extending water out to new developments, and those types of projects were very different from projects to retrofit water. He then stated as the City moved from a program where the minority could rule about water to a program where the majority ruled, the City had to be careful not to victimize the minority. Mayor Love stated the $10,000 fee should be reviewed for appropriateness periodically. Councilmember Turgeon stated when there was a watermain project scheduled Staff should provide the affected property owners with information about the assessment costs and connection costs in terms they could understand. She went on to state the assessment costs (which is for improvements to the property) and the connection fee (for access to the watermain) need to be clearly described. She commented the way the connection fee is calculated can be confusing. Turgeon stated a consistent message with consistent terminology would help in reducing the confusion. CITY OF SHOREWOOD WORK SESSION MEETING March 13, 2006 Page 4 of 10 Councilmember Wellens stated he supported the idea of a "reader friendly" Municipal Water Brochure. He stated he did not think property owners should be assessed for the connection charge if they did not want access to City water. Mayor Love stated a benefit from paying the connection fee at the time of the assessment could serve as an incentive to apply for City water at the current connection rate knowing there was a chance the fee could be increased in the future. Councilmember Turgeon stated property owners on Smithtown Road thought they had paid their connection fee when they were assessed $5,000; unfortunately they found out the fee would be another $5,000 because their assessment was $5,000 and the connection fee was now $10,000, noting the cost did not include work on their property. Discussion again ensued over the timing of when the connection fee would be charged. Mayor Love recapped what he thought he heard Council agree to - the connection fee would not be charged until the applicant applied for City water. A question that remained was the amount to charge for the benefit to the property. Discussion ensued with regard to how the assessment and the connection fee were determined, and whether or not the property owner should pay the full connection fee at the time they applied for City water. Councilmember Callies stated the connection fee can be determined in advance, but the assessment was based on the individual watermain project costs. Councilmember Wellens questioned why a general assessment charge could not be determined. Councilmember Callies stated the assessment was based on the improvement to each particular property. Attorney Keane explained the City consulted with evaluation experts to determine the value of City water for a single family residence (the difference between a residence with and a residence without City water); that was how the $10,000 number was arrived at. He noted the $10,000 value was determined ten or more years ago. Director Burton suggested the connection fee be updated to reflect today's added benefit, and that property owners be notified months in advance of the proposed change. With regard to Councilmember Callies's comment that the connection fee is sometimes charged in lieu of an assessment, Attorney Keane stated that was a separate policy. Councilmember Turgeon stated the letter that was sent to the Wedgewood Drive/Mallard Lane/Teal Circle property owners in effect stated they would get the water "for free" and only 19% of them responded to a poll stating they would be interested in having City water. She stated she thought the reason more property owners did not respond positively was a result of the wording in the survey. Director Brown stated the wording of the first poll was unfortunate, and noted a second mailing had been sent to property owners. He explained after the second mailing there still was not 67% support for the City water. Discussion ensured with regard to how the benefits of City water should be marketed to the property owners. CITY OF SHORE WOOD WORK SESSION MEETING March 13,2006 Page 5 oft 0 Mayor Love stated at the time the $10,000 value for the benefit of City water was determined the average assessed value of a single family residence in Shorewood was $150,000, which made the benefit value approximately 7%. Today the average assessed value of a home was $300,000, which would make the $10,000 benefit value approximately 3%. He stated he thought the $10,000 benefit value should be re- analyzed. Mayor Love stated it was important to ensure Council had a clear understanding of the City's water policy, and that understanding needed to be communicated to property owners. He then stated as Council tried to amend the policy over the last eight years it had become more complicated. He recommended the benefit value of City water to a single-family residence should be put on hold until there was Council consensus on what the water policy should be. Mayor Love asked the two Wedgewood Drive property owners present at the meeting if they would like to address Council. Dean Corder, 5685 Wedgewood Drive, stated the water policy was confusing to him. He stated he did respond to wanting City water. He went on to state that he had a number of questions after receiving the question and answer information document describing the Road Reconstruction Project. He then stated he had contacted Steve Gurney who had answered some of his questions and eliminated some of his confusion. Mr. Corder stated he knew that City water would be inevitable, and some infrastructure had been put in place. He explained he had a well and was perfectly content with it. He then stated he supported installing the watermain, and he was not opposed to paying an assessment for his share of the cost. He was opposed to paying the connection fee at that time. Mayor Love clarified the current policy did not require him to pay the connection fee until he applied for City water. Mr. Corder went on to state after reading the letter, and after talking with Mr. Gurney, he understood the only thing he would have to pay would be the connection fee and that was due at the time he applied for City water. He commented on the importance on effectively communicating the City's water policy once Council had reached consensus on what the policy would be. Mayor Love explained one of the problems was the City had different policies for different situations. When the watermain was installed along Minnetonka Drive between Cub and County Road 19, policy in place did not require property owners to hook-up to City water. There was no charge to the owners; there was no polling of the owners. He then explained with the Wedgewood Drive project the property owners were polled with regard to their desire for City water to meet the 67% favorable petition of property owners policy, and this would require an upfront assessment to cover the cost of the watermain installation. Mr. Corder stated he understood the ability to pay the assessment over a number of years lessened the immediate financial impact. But, he added, when the costs for the $10,000 connection fee and the personal costs to bring City water from the watermain to his house were factored in, the financial burden was substantial. He questioned whether or not the total costs of having City water would increase his property value accordingly. Mr. Corder stated he thought the reason for the poor response from the neighborhood property owners was a result of confusion and lack of clarity, and because of the short timeframe allowed to respond. He suggested Council not count a "no response" as a no vote until the City had again tried to educate the property owners on the policy. Mr. Corder stated that communication could be done through neighborhood meetings, or by inviting property owners to meet with the City Engineer. CITY OF SHOREWOOD WORK SESSION MEETING March 13, 2006 Page 6 of 10 Mr. Corder stated his lot was on the corner of Wedgewood Drive and Harding Lane and he wondered if he would be assessed when a watermain was installed on each road. Director Brown explained he would only be assessed for one watermain project. Director Brown stated the letters had been sent to the property owners and the people renting the property. He clarified the $10,000 connection fee was for a single-family residence, and the duplex connection fee was $15,000. Mr. Gurney explained that for duplexes $7,500 was due upfront and the remaining $7,500 was due at the time of the connection. Brown also explained a fourplex had 90 days to hook-up to City water. Michael Pressman, 5670 Wedgewood Drive, addressed Council next. He explained that Director Brown had spent time answering questions, and Administrator Dawson and Staff had compiled the information he had requested. He expressed his thanks, and stated he had been trying to educate himself on Agenda Items 3 and 5. Mr. Pressman agreed with Mr. Corder that a "no response" should not be considered a no vote. He asked that Council not make any decision with regard to installing a watermain as part of the Road Improvement Project until it had approached the property owners one more time. He explained the statement "charges would only be incurred if you decide to connect to City water" in the question and answer document caused confusion. He stated the survey allowed for approximately one week to respond, and that turnaround time was insufficient considering the financial impact of the decision and the accuracy of the information that had been provided. Mr. Pressman than stated he was confused about the petition of property owners scenarios. Mr. Pressman stated he had not responded to the survey and he explained his reasons for indecision. His reasons were: there was no information about payment terms (e.g. the assessment amount, the payment terms, the interest rate); it was unclear if the stated assessment cost was fixed, or could that increase if the project costs increased and to what amount; the questionnaire had been distributed prior to Council agreement on the connection fee policy noting the property owners had conveyed their displeasure with the policy at a Council Meeting on July 25, 2005; the financial planning he needed to do with regard to the entire cost for City water took more than one week to complete; he had not had time to determine what his monthly water charge would be in that week; and he questioned why the City's water had not met lead quality standards for two of the last three years. With regard to the connection fee, Mr. Pressman stated he understood there were "real costs that were not covered by the assessment" and he understood the intent of the policy was to try and have "equity". He then stated there were two ways to charge for the "real costs" and both ways would be equitable: 1) charge each property owner for the "real costs" not covered by the assessment; or, 2) charge the rate payer as part of the rate. He noted Councilmember Callies supported charging for "real costs". He suggested Council not proceed until the equity question had been resolved. Mr. Pressman stated at the July 25, 2005, Council Meeting Council member Callies questioned the legality of charging a fixed amount, and Councilmember Turgeon stated there should be a City-wide policy, not a neighborhood by neighborhood policy. He then stated he did not believe Callies's question with regard to the legality had been addressed. Mr. Pressman went on to state it appeared as if the City was using the Minnesota Supreme Court holding regarding the difference between special assessments and connection fees to make financial planning for a difficult process easier. He again stated the policy was not equitable. CITY OF SHORE WOOD WORK SESSION MEETING March 13, 2006 Page 7 of 10 Mr. Pressman stated once his questions had been answered, including the question on equity, and if he decided to vote in favor of water, he would approach the property owners that had not responded and attempt to convert them to a yes vote. He noted the complicated nature of the water policy, and did not fault anyone for the stated of confusion. Mayor Love expressed his appreciation to the property owners for coming forth. He stated this was only the second time in eight years Council had attempted to put the water policy into practice, noting the first time was on Timber Lane. He then stated Timber Lane was different because it was done entirely from petition and this was the first time as part of road renovation. Mr. Pressman stated he had had another engineer review WSB's cost estimates and they appeared to be reasonable. His engineer noted there could be cost savings on the 8-inch watermain because he had recently seen them be less expensive. With regard to Mr. Pressman's comment that the equity question was critical and he wanted Council to address it, Councilmember Wellens stated previous Council-established the policy of a $10,000 connection fee and he asked Mr. Pressman if he was asking Council to change the policy. Mr. Pressman cited Minnesota Statute 429 with regard to assessments and connection charges. He stated the current water policy was not equitable, it was opportunistic. Mayor Love stated Shorewood was a community of mixed density and lot sizes. He stated the costs in a low density area could be very high, and how could one achieve equity between low and high density areas. Attorney Keane stated a couple of concepts were being commingled. He explained a special assessment under Chapter 429 was governed by two principles: 1) the special assessment amount should reflect the costs of the project based on a formula; and 2) the special assessment shall not exceed the special benefit test (i.e. increase in value to the property as a result of the improvement). He then explained the connection fee was under Chapter 444 and the test for those charges was if they were just and equitable. He went on to explain when the City determined the connection fee approximately 10 years ago, it needed to determine how to distribute the costs for the infrastructure investment (e.g. the wells, the treatment facilities, the storage facilities, etc.) over an entire system; the connection fee was the only way to reconcile the costs for that structure. He went on to state it was difficult to determine what portion of old infrastructure costs could be attributed to property owners that were now applying for City water. He then explained that was why Council sought the help of valuation consultants in establishing the amount for the connection fee, which was to reflect the increase in property value as a result of City water. In response to a question from Councilmember Turgeon with regard to Councilmember Callies's July 25, 2005, stated concerns about the legality of the connection charge, Callies stated a flat fee of either the assessment amount or $10,000 (whichever was higher) does not take into account the benefit analysis required by Chapter 429. Callies went on to state she perceived the water policy to be a way of avoiding uncomfortable discussions with regard to water special assessments, although she could not confirm that. Callies went on to state she was not opposed to special assessments for water provided they can be demonstrated to be of benefit to the property and reflect the cost of the project. She also stated there were circumstances when the property owner could not be assessed the entire cost of the project because the cost would exceed the benefit, and the City would need to incur the cost or a portion of the cost. In summary she stated the City should have a policy that would specially assess the property for water benefits, and have a reasonable separate connection fee that reflects some portion of the infrastructure costs. CITY OF SHOREWOOD WORK SESSION MEETING March 13,2006 Page 8 oft 0 Councilmember Turgeon stated the reason the policy was established as such was because it would be easier to administer. She then stated at that time the City had a plan to install watermains when streets were put it or renovated, the monies for the connections charges would realized over a IO-year, which turned to be 20-year; timeframe. Attorney Keane stated uniformity and simplicity were part of the discussions with regard to the connection fee. Director Brown stated the Wedgewood Drive project was somewhat unusual because the special assessments were lower than typical because of the density. He stated he understood Attorney Keane to say the $10,000 amount was defensible. Keane clarified he had stated the connection fee needed to be just and equitable. Councilmember Turgeon questioned how the special assessment would be handled when watermain projects to similar density and lot size areas were significantly different in costs due to conditions like soil being bad, yet the benefit to the property was the same. Mayor Love explained the stated the $10,000 connection fee for City water, which had been 7% of the median home value when established and was now 3% of the median home value, was a bargain and would still be a bargain if the figure rose to $15,000. He stated from his perspective the water system had the capacity to support additional subscribers, and he would like Council and Staff to determine how to communicate how good a value City water currently was and now was the time to apply. He then stated once the subscriber base had increased that would be the appropriate to reevaluate the connection fee. Mayor Love suggested Council adjourn from the discussion regarding the water policy and return to it at a future Work Session. Councilmember Turgeon stated she thought a work session on the topic of the water policy was in order. Councilmember Wellens suggested Council direct Staff to complete the Municipal Water Brochure explaining the existing policy as soon as possible and get that distributed to the Wedgewood Drive/Mallard Lane/Teal Circle property owners. He suggested a future Work Session should have a structure approach for determining what a new policy should be. Councilmember Turgeon suggested the Wedgewood Drive property owners be used to assess the effectiveness of the Brochure. Mayor Love stated he would was not in favor on conducting another survey with the Wedgewood Drive area property owners. It was important property owners understood the initial cost for City water was comprised of three elements: 1) the cost to install the watermain; 2) the cost to connect to the watermain; and 3) the individual property costs to bring water from the watermain to the residence. He then stated the City needed a response to the question of water quality. Director Burton explained the property owner would decide the method they would use to purchase the initial water improvement (would they finance the purchase, pay the cost up front, etc.). She then explained the City could say it had terms available but the City could not provide the specifics right then; determining City finance rates was more involved and varied by project. Council asked Staff to report back on the questions raised (where possible) on the water policy at the April lOW ork Session. CITY OF SHOREWOOD WORK SESSION MEETING March 13, 2006 Page 9 of 10 Staff should also work with some of Wedgewood Drive/Mallard Lane/Teal Circle property owners on the water policy issue. In response to a question from Councilmember Wellens, Administrator Dawson stated Shorewood's water policy was somewhat unique. Mayor Love stated he believed the system was complicated and convoluted. Councilmember Wellens questioned if it was common for cities to have special water assessments and connection fees. Administrator Dawson and Attorney Keane both stated two charges were fairly common. Councilmember Callies stated the charges are common; Shorewood's policy is not common. 4. POLICY ON PRIVATE PARTY PARTICIPATION IN CITY CONTRACTS Administrator Dawson explained a question had come up from Council about whether work on private properties may participate in public contracts. The specific matter that was raised was whether the private roadways in the Shorewood Ponds Association could be included with a City contract for a street overlay or sealcoating. Staff was asked to investigate the legality of such arrangements, and identify policy implications that might arise. Administrator Dawson then explained Staff had spoken with Attorney Keane, and the short answer is that such arrangements are permitted. The terms under which this type of work would be done were critical. Attorney Keane strongly advised that the City be involved in this arrangement only if the private parties agreed that they would not take action against the City for the quality of work or defects that may occur on their property. Administrator Dawson stated Staff recommended that interested parties be encouraged to contact the City's contractor, rather than having them included in the City's contract. Director Brown stated it was often difficult to please all property owners affected by a project. He stated he believed there could still be instances of property owners attempting to hold the City liable for the work even if the property owner had signed a waiver stating they would not take action. Mayor Love stated there could also be an issue with how to distribute the cost savings between the City and the property owner. He then stated he would not want to have private property work completed as part of a City contract. Councilmember Turgeon asked Staff to notify the property owners on Pond View Drive in the Shorewood Ponds Association of when the work was scheduled to be done and the name of the City contractor that would be doing the work. Councilmember Turgeon requested all private roads be subject to the same policy. Director Brown stated that was the current policy. 5. REPORT ON SURVEY RESULTS - W ATERMAIN PROJECTS This was discussed as part of Item 3. CITY OF SHOREWOOD WORK SESSION MEETING March 13, 2006 Page 10 of 10 6. OTHER There was no other business for discussion. 7. ADJOURN Wellens moved, Turgeon seconded, Adjourning the City Council Work Session Meeting of March :::::::~:. s:::::;:~ 5/0. !/ (, I /./ /) / / Christine Freeman, Recorder ~ Woody Love, Mayor ATTEST: