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06-25-12 CC WS Mtg MinCITY OF SHOREWOOD CITY COUNCIL WORK SESSION MONDAY, JUNE 25, 2012 MINUTES 1. CONVENE CITY COUNCIL WORK SESSION 5755 COUNTRY CLUB ROAD COUNCIL CHAMBERS 6:00 P.M. Mayor Lizee called the meeting to order at 6:00 P.M. A. Roll Call Present. Mayor Lizee; Councilmembers Hotvet, Siakel (arrived at 6:46 P.M.), Woodruff and Zerby; Interim Administrator/Director of Public Works Brown; Finance Director DeJong; Planning Director Nielsen; and Engineer Landini Absent: None B. Review Agenda Zerby moved, Hotvet seconded, approving the agenda as presented. Motion passed 4/0. 2. WATER PLAN UPDATE Mayor Lizee noted that Paul Hornby, with WSB & Associates, Inc. (WSB), is present this evening to review updates to the City's Water Plan. Engineer Landini explained that during Council's February 27, 2012, work session Staff presented Staff's version of the 20 -Year Municipal Water Plan (the Water Plan) and solicited feedback from Council. During that meeting Council directed Staff to write a request for proposals (RFP) for consulting services to conduct a peer review of the Water Plan. During its March 26, 2012, Council directed Staff to send out the RFP to the City's consultant pool. During its April 23, 2012, meeting Council accepted an RFP from WSB to conduct the review. He stated Mr. Hornby is present to review the updates to the Water Plan. A letter written by Mr. Hornby summarizing the information is included in the meeting packet. Interim Administrator/Director Brown noted the original Water Plan written in 1996 was prepared by Mr. Hornby. Mr. Hornby noted he had worked with the City between 1993 and 1996/1997. He reviewed the items he proposed discussing this evening. They are as follows. • Capital improvement project cost forecasts for 2013 — 2019 and projections out to 2032. The proposal was to focus on the first seven years. • Alternative construction methods. There are new methods that may reduce improvement costs. • Proposed modifications to the schedule of water system improvements and /or the 20 -Year Pavement Management Plan (PMP). • Policy alternatives to encourage /incent residents to connect to the City's water system. • Funding alternatives for the extension of watermain. With regard to capital improvement project costs, Mr. Hornby explained trunk watermain has much larger pipe than a lateral watermain. It carries water from the elevated tanks and it distributes it to the lateral watermain in localized areas. Generally, water service comes off the lateral watermain. About five years ago WSB would have estimated the per - linear -foot cost for lateral watermain at around $65. Today's cost is estimated to be $80. The per - linear -foot cost for trunk watermain is $101. The trunk watermain line is a 10- CITY OF SHOREWOOD WORK SESSION MEETING MINUTES June 25, 2012 Page 2 of 5 inch pipe or larger and the lateral watermain line is an 8 inch pipe. Roadway restoration costs were estimated based on removing and replacing one half of the roadway where roadway reconstruction is not anticipated at the time of the water system expansion. For roadways in the PMP that are targeted for reconstruction those roadway restoration costs are not included Water Plan capital costs. The project cost projections are based on 2012 construction cost data. They also include a 5- percent contingency and 20 percent for indirect costs. The lowest costs for any given year (2014) are approximately $7,100 per parcel. The greatest cost for any given year (2012) was approximately $33,000 per parcel. The per - parcel costs are for existing lots. Future lot splits were not factored in. The lowest cost in 2014 was low because it was one area. It is likely that would be done in 2013 or 2015 to coordinate with the PMP. Therefore, road restoration costs are not included. The cost projection total for 20 years out in 2012 dollars is estimated to be about $26.5 million. The contingency costs were kept at 5 percent, rather than WSB's normal 10 percent, because City Staff did a great job of detailing costs. The 20 -Year Water Plan developed in 1996 was estimated to cost in total approximately $15 million. With regard to alternative construction methods, Mr. Hornby explained the City of Shorewood was on the forefront back in the mid 1990s. There are some watermain segments in the City that had been installed with directional drilling utilizing high density polyethylene pipe (HDPE). HDPE is a very good product and is used more for storm sewer systems than municipal water systems. It is somewhat more difficult to hook individual services to it and make repairs. Special contractors are often needed to do the work. In the last five years PVC manufacturers have brought a new product called C -900 to market. It can be fused together at 1000 feet similar to HDPE. Laterals and service connections to the PVD pipe C -900 can be made in a method similar to DIP (ductile iron pipe). It can be directly tapped with a cork and a saddle. If there is a watermain break public works personnel can make the repair rather than using a special contractor to do the repair. Maintenance with C -900 is a little bit easier. Improvements have been made to HDPE and now it is possible for public works personnel to make connections. Maintenance of HDPE systems is now easier. There may be a significant savings realized by directional drilling of watermain because a lot of the restoration costs can go away. The cost of the pipe is higher and special equipment is needed. Pot holes must be dug to add services. The use of this type of technology should be evaluated on an individual segment basis. He noted that over the last 10 years he has been involved projects totaling with over 20,000 feet of directional drilling. The costs for watermain extension are based on pipe being placed in the roadway and using conventional methods of installation. With regard to the water system improvement schedule and comparison to the PMP schedule, Mr. Hornby stated from a connection to the trunk system and operations flow the spine of the water system is pretty much intact. There are no changes based on that. There are some minor changes that could be made to Water Plan schedule to concentrate some improvements to reduce mobilization costs. The PMP indicates there are some roadways maintenance projects (seal coat and overlay) that are scheduled to occur a year before or after a watermain project. Those should be rescheduled so they are at least two years before or after. With regard to policy alternatives for the expansion of water, Mr. Hornby stated policies could take the majority of the time. He explained he pulled together a lot of policies from different communities. A connection policy should be established that stipulates how long after water service is made available to a property it must be connected to the service. It could be when an individual well fails. Or it could be some time period (such as 5 — 10 years) after public water is made available. He recommended including the City's attorney in policy discussions. He noted policies vary widely from community to community. He stated there are a lot of things the City can do, noting what the City currently does is fine also. The City should have a way to incent people to connect to the municipal system. If the City estimates a property's waste water discharge to the sanitary sewer system based on daily water use or if the waste water charge by the Metropolitan Council Environmental Services (MCES) is divided annually CITY OF SHOREWOOD WORK SESSION MEETING MINUTES June 25, 2012 Page 3 of 5 among properties connected to sewer the City may want to consider another way of doing that. When a property is serviced by City water they are on a meter so waste water could be based on water consumption. A meter could also be offered for an irrigation system in order to keep irrigation usage out of the calculation for waste water. That would help the City assess for waste water more appropriately. If the City wanted to monitor usage from individual wells there are likely some legal things that should be considered. Often cities will allow a property owner to keep their private well after connecting to municipal water service to use it for irrigation provided the well is permanently disconnected from contact with the municipal water system. With regard to funding alternatives, Mr. Hornby stated the City has the ability to utilize a variety of funding sources for the expansion of its water system. He noted that the City currently has a $10,000 connection charge. Because property owners may view that charge as somewhat high it may serve as a disincentive to property owners when it comes to connecting to City water. For a lot of the systems he has been aware of over the years he has found that the cost of the watermain assessment for expansion of the water system ranges between $7,000 and $12,000. The City's connection charge of $10,000 does not seem to be excessive. Based on the projected capital costs for expansion, the average per parcel cost is over $17,000. If a private well needs to be replaced, the $10,000 does not appear to be as great as it would if a person has a relatively new working well. The cost for a replacement ranges from about $6,000 for a drift well to about $10,000 for a bedrock - drilled well. The City can choose to spread the connection charge over a period of years. A portion of the cost for watermain expansion can be funded for through assessments to the benefiting properties. The City could decide to establish utility districts under Minnesota Statutes Chapter 444 to expand watermain. Under a Chapter 444 district the City does not have to show benefit to properties as is required under Chapter 429. The City could negotiate with private utilities (gas and electric) to have a franchise fee collected by the utility to provide a long -term revenue stream to help fund watermain expansion. A franchise fee is limited to 5 percent of the gross operating revenue or gross earnings from its operations in the City. Most of the fees he has reviewed were about 3 percent. The City could take out some very low interest loans through programs such as the Public Facilities Authority, the Drinking Water Revolving Fund or other similar agency programs. The City could also sell bonds at a more favorable rate than low interest rate loans. Mr. Hornby reviewed an average cost sample funding scenario with some of the funding alternatives just discussed. The average scenario is based on the 20 -year funding expansion projected costs of $26,541,000 (in 2012 dollars), an estimated 2829 residential sewer connections, and an estimated 1538 residential water connections. The average per - parcel cost (construction and indirect) cost would be approximately $17,300 ($26,541,000 / 1538 parcels). The connection charge would be reduced to $6,500 to make it more palatable to residential property owners. That gets the water to the property line. The assessment portion would be $8,500 and it could be assessed over an 8 — 10 year period. Utility district fees would be approximately $2,300 per parcel (spread over 15 years at $12.60 per month). Each year the average cost should be increased by the Engineering News Record Construction Cost Index for Minneapolis for budgeting reasons. Mr. Hornby then reviewed a high cost scenario. The average projected cost is based on a per - parcel cost of $33,230. The connection charge would be reduced to $6,500 and the assessment portion would be $8,500. Utility district fees would be approximately $18,300 per parcel. The fees would be $102 per month when spread over 15 years, $76 per month spread over 20 years, and $61 per month spread over 25 years. Mr. Hornby stated the City could possibly be able to use the utility franchise fee to help buy down interest on loans or bonds. He worked with one city that did that. Councilmember Woodruff thanked Mr. Hornby for his report and noted that he found the information very understandable. He stated one of the challenges the City has with its water system is that some property owners have chosen not to connect to the water system when it is made available to them. For the last watermain extension project done (about 6 years ago) the take rate was 33 percent. He asked if there is an issue when water is not flowing through a pipe; and if it creates a mechanical or corrosion issue. Mr. Hornby CITY OF SHOREWOOD WORK SESSION MEETING MINUTES June 25, 2012 Page 4 of 5 stated when he worked with the City years ago the City flushed its watermain and a couple of times each year. It also does other maintenance to the water system. Councilmember Zerby expressed interest in wanting to look at the spreadsheet summarizing policies of other cities. He stated he assumes the City is not the only city that is dealing with the conversion from private wells to municipal water. He asked what policies other cities used to successfully make that transition; both politically and economically. Mr. Hornby stated for a lot of the cities he has worked with their expansion of their water and sewer systems is based on development. In Shorewood there is not a lot of development opportunity remaining. The City would be expanding its water for reasons such as fire safety and water quality. The City is not a very dense community based on units per acre. Therefore, the cost to extend the same length of watermain through the City is higher than for other communities. Councilmember Zerby asked if there are any areas in the City where there is "low lying" fruit. Areas where watermain could be extended relatively quickly and economically, and be accepted by the property owners. Mr. Hornby stated there are some areas where the cost would be more palatable at $10,000 — $11,000 per parcel. There may not be much incentive in areas where the cost is $33,000. Zerby stated in theory it seems that the more properties watermain extension can reach the lower the per - property cost should be. He noted about one half of the City is on City water. The City has made a significant investment in its two water towers and five or six wells. A lot of watermain has been installed to reach the far corners of the City. A significant investment has already been made. He then stated there are a number of properties that haven't paid for the cost to have watermain in front of their property because they have not connected to the system yet. Mr. Hornby recommended concentrating on the first seven years of the Water Plan. One option would be to front load that with the lower costs extension projects. In response to a question from Councilmember Woodruff, Mr. Hornby explained the sample average costs were based on the number of sewer connections and the number of water connections. He noted that it is unlikely the City will extend watermain to the Islands but those parcels have been included in the calculations. Woodruff noted that the number of sewer connections includes connections on the Islands. Therefore, the per - parcel average cost is a little understated. Mr. Hornby stated he will adjust that. Councilmember Hotvet stated she thought the report is great. She appreciates the road and water projects being overlaid. She suggested overlaying the Trail Plan as well. Councilmember Siakel arrived at 6:46 P.M. Mayor Lizee stated she is pleased that all of this information is in one document with a 20 -year schedule, and that it works with the PMP. She extended her thanks to Staff and Mr. Hornby for their efforts. She stated this document will help Council and Staff lay out future capital improvement plans. She then stated the next part of this process will be the financial analysis component. She asked Council if it has any other questions about the Water Plan. Councilmember Zerby reiterated he would like the information about other cities' policies distributed to Council. He noted the memo from Staff indicates the next steps are for Staff to conduct the financial analysis and develop policy options for Council's consideration. He stated he would like to have more property owners who have the option to connect to City water, but haven't done so, do so. He then stated a lower connection charge may make it more attractive for them to do that. CITY OF SHOREWOOD WORK SESSION MEETING MINUTES June 25, 2012 Page 5 of 5 Interim Administrator /Director Brown stated representatives from the Lake area communities have talked about having water continuity from city to city for municipal water. The goal of the public works directors is to be able to pump water from the City of Victoria to the City of Minnetonka and beyond. The public works directors have had discussions about how to make the water systems contiguous to ensure uninterrupted access to municipal water should there be a failure in some area. One area that comes up to make that happen is on Country Road 19 near the veterinary clinic to connect to Excelsior's water system. If that opportunity presents itself Staff recommends taking advantage of making that key link. Brown then stated Staff had previously talked about going through the engineering report and refining the costs for expansion. After that was done the anticipated cost information would be provided to the financial consultants for them to conduct a financial analysis. He stated if Council still agrees with that approach Staff will begin that process. Director DeJong stated it is prudent for Council to decide on financial policies prior to getting a financial analysis done. There is no good way to do the financial analysis if the underlying assumptions are not agreed to. Interim Administrator/Director Brown asked Mr. Hornby if he has everything he needs to finalize his report. Mr. Hornby stated he will remove the sewer connections on the Islands from the number of sewer connections and recalculate those numbers using the correct number of parcels. He will also review with Staff some of the scheduled items in the PMP and adjust them accordingly. The focus will be on the first seven years in the Water Plan. Brown stated based on the discussion this evening WSB will finalize the report. He encouraged Council to begin policy discussions. 3. ADJOURN Woodruff moved, Zerby seconded, Adjourning the City Council Work Session of June 25, 2012, at 6:52 P.M. Motion passed 5/0. RESPECTFULLY SUBMITTED Christine Freeman, Recorder hristine Lizee, ayor ATTEST- X arrywn, Interim City Administrator /Clerk