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HomeMy WebLinkAboutMinutes - Minutes - City Council - Meeting Date: 12/16/2003 * PLEASE NOTE: Since the Glendale City Council does not take formal action at the Workshops, Workshop minutes are not approved by the City Council. MINUTES CITY OF GLENDALE CITY COUNCIL WORKSHOP DECEMBER 16, 2003 1:30 p.m. PRESENT: Mayor Elaine M. Scruggs, Vice Mayor Thomas R. Eggleston, and Councilmembers Joyce V. Clark, Steven E. Frate, David M. Goulet, H. Phillip Lieberman, and Manuel D. Martinez ALSO PRESENT: Ed Beasley, City Manager; Pam Kavanaugh, Assistant City Manager; Jon Paladini, Interim City Attorney; and Pamela Hanna, City Clerk 1 . UTILITIES RATES AND DEVELOPMENT IMPACT FEES ANALYSIS CITY STAFF PRESENTING THIS ITEM: Mr. Ken Reedy, Deputy City Attorney and Mr. Roger Bailey, Utilities Director OTHER PRESENTERS: Mr. Jack Boomhouer, Black and Veatch Consultant This is a request for City Council to review and provide direction on the water and sewer rates analysis and the Development Impact Fees analysis. Per Council direction at the December 2, 2003 Workshop, we are bringing forward information and charts to address the following questions that were summarized at the end of the meeting: 1 . Provide the calculated Development Impact Fees (DIF) rates at all classes. Set out residential with a tiered approach for 3 years. 2. Provide the calculated DIF at 90%. 3. Explain how these approaches would impact the need for rate increases. 4. Explain what type of increases would be necessary in future years if the rate increases were staggered? 5. Explain what a decrease in the rate from 4% to 3% would do to the City reserves? 6. Where do the bond covenants tell us we have to be? What is the target? 7. Provide examples (i.e. 2,000 square foot house, vs. small office, etc.) of how the fees and rates affect different categories. 1 Council Policies Or Goals Addressed The increases in rates and fees will provide the necessary infrastructure and operational aspects that ensure the city will remain in compliance with regulatory standards. This will maintain the quality water supply for Glendale residents. In order to be consistent with the Council goals of providing financial stability and coordinating exceptional service delivery, an increase in sewer rates and water rates is necessary. Also, consistent with Council policy, the increase in water Development Impact Fees will ensure growth-related projects continue to be self-supporting. Background Black & Veatch was selected as the consultant to complete the Water Master Plan. In support of the Water Master Plan, Black & Veatch conducted a water and sewer rate analysis. They recommended a series of water rate increases and two 4% increases in sewer rates in Fiscal Years (FY) 2011 and 2012. These recommendations are based on a detailed analysis of revenue generated monthly under the existing rate structure and the future needs as determined by the findings detailed in the Water Master Plan. Consultant Black & Veatch also prepared an updated report on the city's Water and Sewer Development Impact Fees. Their update utilized the methodology established by Tischler and Associates, Inc. in the comprehensive fee study completed in 2001. Based upon the Black & Veatch evaluation, they recommend that water development fees be increased and that the sewer development fees remain the same. The Water Development Impact Fee report documents the cost of the water facilities to maintain current levels of service while accommodating new development, and proposes changes to the current Water Development Impact Fees. Revenue from the proposed charges will cover the capital costs associated with growth. Rate increases for water and sewer services are required in order for the Water Enterprise Fund and the Sewer Enterprise Fund to maintain adequate operational cash reserves and finance the 10-year Capital Improvement Program (CIP) necessary for the viability of the sewer system and the water system. The rate increases will also help to offset costs due to escalating regulations and mandates set by federal and state regulatory agencies related to the operational aspects of all City of Glendale water and wastewater treatment facilities. The city's Utilities Department must be able to meet the financial criteria set by the bonding companies as a prerequisite to receiving a superior bond rating. The increase in rates will help the city meet the required financial criteria. 2 The Water Development Impact Fees (DIF) are necessary so that the city can expand and improve its facilities to serve new growth. Otherwise, existing residents could potentially experience a decline in the level of services they receive. A fee on new development is used to finance costs related to additional capacity. Previous Action on Items The Council authorized a 3-year series of rate increases beginning with the November 1, 1993, billing and ending with the November 1, 1995 billing. There have been no further water rate increases since November 1, 1995. The last increase in Water Development Impact Fees was January 10, 2002. Community Benefit A periodic increase in sewer rates will enable the Utilities Department to continue to provide excellent sewer services and quick response times to problems. By implementing the new water rate schedule and water impact fees, the city will be able to maintain its current level of service to existing residents and support future growth. Direction/Policy Guidance The recommendation was to consider and provide direction on water and sewer rates and Water Development Impact Fees. Mr. Boomhouer said they updated the Development Impact Fees to include a potential phase-in alternative, as well as going to full cost. He stated the fees and financial projections were also updated because a number of factors, including the recent $80 million debt issuance, lowered the interest component of the fees. He explained the Development Impact Fee for water at full cost recovery would total $4,200 for a single family residence, noting the fees from that point increase in proportion to the meter size. He said, to ensure the development fee does not exceed actual cost, 90 percent of the actual cost was used when setting the fee at $4,200. Mr. Boomhouer reviewed a potential phase in schedule for the Residential Development Impact Fee. He explained the fee would initially increase to $3,500 and increase an additional $250 per year until 2008 when it would reach the full cost of $4,200. Councilmember Clark asked why a four year phase in schedule was selected as opposed to a two year schedule. Mr. Boomhouer explained the initial increase to $3,500 represents a significant increase over the current rate. Councilmember Frate emphasized the $4,200 Development Fee represents the city's actual cost. Mr. Boomhouer agreed, stating the phase in schedule was developed as 3 an alternative upon Council's request. He stated all costs not covered by the fee are picked up by the city as a whole through the water rate. Mayor Scruggs asked if the fee is actually 10 percent below actual cost. Mr. Boomhouer responded yes. Mayor Scruggs pointed out Glendale would still fall in the mid-range when compared to the other valley cities if it adopted a full cost recovery impact fee of $4,200. Mr. Reedy disagreed, stating the city falls in the mid-range at a $3,500 fee, but would move to the top of the list if it increased the fee to $4,200. Mr. Boomhouer explained the $4,200 represents only the water impact fee component and, when added to the sewer impact fee, the impact fee would total $5,900. Councilmember Lieberman pointed out the $3,500 impact fee represents a 48.2 percent increase. He asked if the city is currently losing money at the current residential impact fee. Mr. Boomhouer responded yes. Mr. Reedy emphasized the city will fall dramatically behind if everything proposed in the capital plan is actually built. Councilmember Lieberman asked what will the city do until the new impact fee is adopted in 2005. Mr. Reedy explained Council adopted a Notice of Intention to raise the sewer rates by four percent in January 2004. Councilmember Lieberman asked if inflation was taken into consideration when projecting actual cost at the end of the phase in period. Mr. Reedy explained an annual CPI adjustment could be made to keep the impact fee in line with construction costs. Councilmember Clark said she does not support phasing the impact fee in over a period of time. She suggested they proceed with the full $4,200 Residential Impact Fee. Mayor Scruggs asked why the impact fees for other meter sizes increased so dramatically. Mr. Boomhouer explained a standard ratio, developed by American Waterworks Association, is used to determine the amount of additional water delivered through each size meter. He said that percentage increase is then used to set the impact fee for each meter and ensures each meter pays the same amount per gallon per day. Mr. Reedy stated it is common practice to use the American Waterworks Association Standard Practice Evaluation when calculating water and sewer rates. Councilmember Lieberman asked if the impact fee increases for the larger meters would be phased in as well. Mr. Boomhouer said they suggest the city phase in the residential impact fee only. He pointed out increasing the larger meter impact fees to full cost will place the city in the mid-range when compared to other cities. Councilmember Lieberman asked if the increase to the residential impact fee will impact the homebuilding industry. Mr. Reedy said they have not discussed the impact fee increase with the Home Builders Association. He emphasized the city only charges developers their share of the cost of growth. Councilmember Lieberman stated he agrees the residential impact fee should be increased to $4,200 immediately. Mr. Boomhouer continued his presentation, explaining the sewer development impact fee was lowered to $1 ,740 as a result of interest savings. He said the city's rate for 4 commercial 2" meters falls in the middle when compared to other cities. He noted some cities charge based on a building's square footage rather than its meter size, therefore, direct comparisons are difficult. Mayor Scruggs pointed out Glendale's rate is in line with Peoria and most of the Phoenix areas. Councilmember Clark asked why are the impact fees in Chandler, Scottsdale and some Phoenix areas higher. Mr. Boomhouer said, while infrastructure costs are part of the equation, other factors may also come into play. He assured Councilmember Clark that all cities are subject to the state law that says development fees cannot exceed costs. Mr. Reedy pointed out Mesa sets their Development Impact Fee below cost and charges a much higher rate per gallon. Councilmember Lieberman asked if Peoria charges different rates depending on the area. Mr. Reedy said Peoria has a separate impact fee for their northern future annexation area. Mr. Boomhouer said the financial projections were updated to reflect the higher fees and the interest savings on the debt issuance. He expressed his opinion the financial program they laid out will present a good picture to rating agencies. In response to Councilmember Lieberman's question, Mr. Boomhouer explained rating agencies look at the city's operating cushion, noting 20 percent is the minimum cushion allowed. He said the city's coverage rate is between 1.4 and 1.5. Mayor Scruggs asked how did the city receive such a favorable rating if the development impact fee was too low. Mr. Reedy stated staff promised Council would adopt the rates necessary to cover costs. Councilmember Clark noted the city's favorable coverage rate of 1.5 resulted in $4.6 million in interest savings on the last sale, saving citizens 55 cents per month and reducing the rate increase needed by one-third. Mr. Boomhouer reviewed the revised water and sewer rates, reflecting the additional revenue streams. He said the old recommendation was for annual increases in the water rate of four percent from 2005 to 2010, four percent sewer rate increases in 2011 and 2012 and four percent water rate increases again in 2013 and 2014. He stated the revised program calls for a three percent increase in 2005, no adjustment in 2006 and a three percent increase in 2007. He said the rest of the program remained virtually unchanged, although, the sewer rate increases moved up because the Sewer Development Impact Fee decreased slightly. He pointed out Council could choose to delay the 2005 increase until 2006. Councilmember Martinez asked if moving the increase from 2005 to 2006 would have an impact. Mr. Boomhouer responded yes, stating, however, the city would still raise 5 the same amount of money. Mr. Reedy confirmed the recommendations are based on the full Capital Improvement Program and that future impacts could result if the Program is modified in any way. Councilmember Lieberman asked if increasing the capacity of the Pyramid Peak Water Treatment plant from 26 million to 52 million gallons per day will have any impact on the need for three additional plants. Mr. Reedy responded no. Mr. Boomhouer showed a slide depicting the impact of the water and sewer rate increases on a typical residential customer. He said, although the plan calls for a three percent water rate increase, a typical residential user will not see any increase. He explained a cost of service adjustment will be done to ensure commercial and high- volume customers pay their fair share. He said, therefore, they recommend the city proceed with the rate increase in 2005 rather than delaying it until 2006. In response to Councilmember Clark's question, Mr. Boomhouer stated a typical residential user pays $52.17 per month for water and sewer. He said the rate will increase to $60.66 by the end of 2014 assuming all proposed adjustments are implemented. Mr. Reedy noted the $60.66 rate is not out of line with what some valley residents currently pay for water and sewer. Mr. Boomhouer explained, ultimately, they are asking for a $6 increase in the water rate and a $3 increase in the sewer rate. Mr. Boomhouer confirmed for Councilmember Frate that the overall increase is comparable with inflation. Mr. Reedy pointed out the increases are considerably lower than inflation if they take into account the number of years since the last increase. Mr. Boomhouer stated their recommendation is for no increase for users of 15,000 gallons or less, an eight cent per thousand gallons increase for users of 15,000 to 30,000 gallons and $1.20 per thousand gallons increase for large use customers. He said their recommendation is intended to shift more of the cost burden to large use customers and encourage conservation. Mr. Reedy noted some cities charge as much as $3.50 per thousand gallons. Mr. Boomhouer concluded his presentation, stating they recommend: 1) that the Development Impact Fee increases be implemented as soon as possible so that new development begins paying for itself; and 2) the water rate adjustment be made in January 2005 to help achieve additional water conservation and ensure large use customers begin paying their share. Councilmember Frate said implementing the full Development Impact Fee will help ensure favorable bond ratings and, ultimately, achieve interest savings for the city and its citizens. 6 Councilmember Clark reiterated her position that the full cost Development Impact Fees should be implemented because it will encourage conservation. She pointed out the water and sewer rate program could change once the proposed Capital Improvement Program has been approved. In response to Vice Mayor Eggleston's question, Mr. Reedy said, by state law, the city has to have a public hearing when it raises rates. Councilmember Lieberman voiced his opinion full cost Development Impact Fees should be implemented immediately. Mayor Scruggs voiced council's consensus to proceed with the full cost Development Impact Fees. Mr. Reedy explained the city will go through an adoption process and set an implementation date. He said the item will be brought back to Council as soon as possible and their goal will be to have the new Development Impact Fees in effect by the second quarter of 2004. ADJOURNMENT The meeting was adjourned at 3:00 p.m. 7