Loading...
HomeMy WebLinkAboutCouncil Reading File - Council Agenda Report 10_17_17 Meeting Date: 10/17/2017 FROM: Carrie Mattingly, Director of Utilities Prepared By: Jennifer Metz, Utilities Project Manager SUBJECT: WATER AND WASTEWATER CAPACITY AND CONNECTION FEES RECOMMENDATION 1. Consider options for water and wastewater capacity and connection fees; and 2. Adopt a resolution (Attachment B) amending the water and wastewater capacity and connection fees selecting option 2 for water and option 4 for wastewater effective January 1, 2018. REPORT-IN-BRIEF On February 7, 2017, staff conducted a Study Session with City Council (Attachment A). At the Study Session, the City Council provided staff input on the update to what was formerly identified as the City’s water and wastewater development impact fees. At that session, Council supported the name change to “capacity and connection” fees to more clearly communicate what the fees were paying for and directed staff to explore four options when completing the 2017 Water and Wastewater Capacity and Connection Fee Study (2017 Study). Water and wastewater capacity and connection fees are recommended to increase consistent with City policy (Land Use Element, Policy 1.13.9). The recommended fees are the maximum amount allowed by law (Assembly Bill 1600) based on the capital improvements identified for each fee and are tied to the cost of existing infrastructure and capital improvements serving future development. This methodology equitably distributes infrastructure costs to ensure both new development and existing water and wastewater ratepayers pay their fair share of infrastructure-related investments. The completion of the study has been timed to align with the City’s Capital Facilities Fee Program update so that the City Council and community understand the effect of the proposed capacity and connection fees in context with other development-related fees charged by the City for public infrastructure. DISCUSSION This staff report provides water and wastewater capacity and connection fees options for Council consideration. This report analyzes the costs and benefits of each option and highlights the potential impacts to water and wastewater rates because capital costs not recovered through capacity City of San Luis Obispo General Plan, Land Use Element Policy 1.13.9. Costs of Growth. The City shall require the costs of public facilities and services needed for new development be borne by the new development, unless the community chooses to help pay the costs for a certain development to obtain community-wide benefits. The City shall consider a range of options for financing measures so that new development pays its fair share of costs of new services and facilities which are required to serve the project and which are reasonably related to the new growth attributable to the development. Packet Pg 295 11 and connection fees would then need to be recovered via monthly water and wastewater service charges. Chapter 4.20.140 of the City’s Municipal Code establishes water and wastewater development impact fees, hereinafter referred to as capacity and connection fees. Water and wastewater capacity and connection fees are recommended to increase consistent with City policy (Land Use Element, Policy 1.13.9). The recommended fees are the maximum amount allowed by law based on the capital improvements identified for each fee (Assembly Bill 1600) and are tied to the cost of existing infrastructure and future capital improvements serving future development. This methodology equitably distributes infrastructure costs to ensure both new development and existing water and wastewater ratepayers pay their fair share of infrastructure-related investments. If Council provides direction to adjust these fees, staff recommends continuing this discussion so that staff can prepare the appropriate analysis and return with appropriate recommendations at a future meeting. For wastewater, the recommended capacity and connection fees eliminate catchment area fees. The catchment area fee is described in detail below. This simplifies fee implementation; however, because the overall cost of capital improvements remains the same, citywide, the fee substantially increases. This change, combined with an increase tied to the data in the new 2017 Study, create the total proposed increase to the citywide wastewater fee. The proposed fees are shown in Attachment B, Exhibits A and B. Infrastructure Master Planning Following the adoption of the General Plan’s updated Land Use Element in December 2014, the City completed water and wastewater infrastructure master plans to identify and prioritize necessary capital improvements, including those projects to provide capacity to serve future growth. These include: • Potable Water Distribution System Master Plan (2015) • Wastewater Collection System Infrastructure Renewal Strategy (2015) • Water Resource Recovery Facility Facilities Plan (2015) • Recycled Water Master Plan (2017) These master plan documents, along with the City’s Financial Plan and Capital Improvement Plan, provide the basis for identifying future project capital costs. 2017 Study Methodology Capacity and connection fees are developed under the requirements of Assembly Bill (AB) 1600, Gov. Code §§ 66000 et seq., which require a nexus and rough proportionality between fees imposed, the use of the fees, and the development projects on which the fees are levied. The 2017 Study, prepared by HDR Engineering, Inc. was prepared in accordance with the requirements of AB 1600. The methodology used for the 2017 Study divides the value and/ or cost of existing and future capital improvement costs by the estimated number of future growth units. For water and wastewater capacity and connection fees, a “growth unit” is represented by a quantity of water demand and wastewater generation by one residential unit. The City updated the projections for Packet Pg 296 11 future residential and non-residential development in “equivalent dwelling units,” or EDUs, based on a reduction in average water use and wastewater generation, finding that 5,821 future EDUs can be accommodated. This is based on capacity at the City’s Water Resource Recovery Facility and infrastructure modeling conducted for recent master plans. In the 2017 Study, the residential fee category was modified to add new categories to correspond to residential units between 451 and 800 square feet and 801 square feet or more as water demand and wastewater generation correlates more closely to unit size than a single- or multi- family residential land use designation. Fees for non-residential EDUs in the 2017 Study are based on water meter safe operating capacity ratios from the American Water Works Association (AWWA) specifications. Study Session Direction At the February 7, 2017 Study Session, the City Council directed staff to explore four options when completing the 2017 Study, described below and summarized in Table 1. Table 1: Water and Wastewater Fee Options Citywide Fee Existing 2017-18 Impact Fee Option 1 Option 2 Option 3 Option 4 Water $11,322.16 $11,872 $15,7803 N/A N/A Wastewater $ 3,830.213 $ 8,1652 $9,5222 $10,721 $12,6023 NOTES: 1. All fees are per equivalent dwelling unit (or EDU). 2. Additional catchment area fees from Table 2, where applicable. 3. Represents the staff recommendation. Option 1. The capacity and connection fees calculated in Option 1 include only debt-financed water and wastewater assets and do not include a buy-in component to other existing water or wastewater infrastructure. Under Wastewater Option 1, additional wastewater catchment area fees would apply, where applicable (see Table 2). Option 2. The capacity and connection fees calculated for Option 2 are based on a methodology that values all existing and future water and wastewater assets. Under Wastewater Option 2, additional wastewater catchment area fees from Table 2 would apply, where applicable. Capital Improvement Costs ÷ EDUs to be Served = Cost per EDU Option 1: Debt-Financed Capital Improvement Costs ÷ EDUs to be Served = Cost per EDU Option 2: Capital Improvement Costs of all Assets ÷ EDUs to be Served = Cost per EDU Packet Pg 297 11 Wastewater Catchment Area Fees. Of the over 5,800 future EDUs in the City, approximately 80 percent, or 4,600 future EDUs, are served by wastewater lift stations and force mains. These “catchment areas” include the Orcutt, Margarita, Airport (Avila Ranch, Fiero, East Airport), San Luis Ranch, and Froom Ranch specific plan areas. These catchment areas are primarily located in the southern portion of the City, except for the Foothill catchment area located in the northeast area of the City. The total cost of catchment area improvements is over $34 million, with approximately $15 million attributed to future development. These costs are allocated based on flow generation in each of the catchment areas. Under Wastewater Options 1 and 2, these additional catchment area fees would be added to the fee, where applicable. The Airport and Foothill catchment area fees support the replacement of existing lift station infrastructure. The Buckley catchment area fee is applicable to development in the Airport Area Specific Plan, including the Avila Ranch project and other development east of that project along Buckley Road. Options 3 and 4. The wastewater capacity and connection fees calculated for Option 3 uses the methodology from Option 1 plus the catchment area improvement costs. This results in one citywide wastewater capacity and connection fee. Option 4 uses the methodology from Option 2 plus the catchment area improvement costs resulting in one citywide fee. FISCAL IMPACT The City’s water and wastewater utilities are classified as enterprise funds. Fundamentally, the revenue requirement to operate each utility is expected to be covered by system user rates. General Fund revenues (such as property taxes, Measure G revenues, transient occupancy taxes, etc.) are not used to support the work of the utility. There are two significant sources of revenue for the water and wastewater utilities – system user Table 2: Catchment Area Fees Catchment Area 2017-18 Development Impact Fees Option 1 & 2 Catchment Area Fees Calle Joaquin $1,878.64 $2,898 Laguna $503.30 $434 Margarita $2,819.50 $3,830 Silver City $1,392.80 $2,429 Tank Farm $3,728.52 $3,192 Airport N/A $6,372 Buckley N/A $643 Foothill N/A $22,319 NOTE: All fees are per equivalent dwelling unit (or EDU). Catchment area fees apply only under Options 1 and 2. Wastewater Option 3: Debt-Financed Capital Improvement Costs + Catchment Area Costs ÷ EDUs to be Served = Cost per EDU Wastewater Option 4: Capital Improvement Costs of all Assets + Catchment Area Costs ÷ EDUs to be Served = Cost per EDU Packet Pg 298 11 rates and capacity and connection fees. The main revenue source (approximately 90 percent) for the water and wastewater utilities are system user rates. This is a relatively stable, predictable source of funding. System user rates are set to meet the operations, maintenance, and long-range capital infrastructure needs for each utility. Capacity and connection fees are a secondary revenue source. The revenue from these fees is tied to the capital projects identified in the 2017 Study (prior capacity and connection fees were tied to prior studies). The capacity and connection fee program ensures that existing ratepayers and new development equitably apportion costs related to existing and future capital expenditures. There is a correlation between capacity and connection fee revenue and system user rates. Fees not collected through the capacity and connection fee program are supported by the water and wastewater ratepayer through the rates. Most frequently, the capital expenditure for future development is made before the total capacity and connection fee revenues are realized. Full revenue collection can occur over several decades. However, assuming construction of 5,821 EDUs in 25 years, Table 3 and Table 4 present a comparison of the potential revenue from the current fee and capacity and connection fee options. Over a 25-year period, an estimated $574 million in total water fund revenue would be collected toward capital improvements (including debt service) of which $91.8 million would be the fair share from new development. Likewise, an estimated $458 million in wastewater fund revenue for capital improvements (including debt service) of which $73.4 million would be the fair share from new development. Without revenue from capacity and connection fees under water Option 2 and wastewater Option 2 or 4, water rates would increase approximately five percent and wastewater rates would increase approximately ten percent to generate adequate revenue. As described above, staff is recommending Water Option 2 and Wastewater Option 4, shown in Attachment B, Exhibits A and B, which are the options that include valuation of all existing and future water and wastewater assets and eliminate catchment area fees. These options represent cost-based capacity and connection fees based on the fair share of existing infrastructure and capital improvements needed to serve future development. The water and wastewater capacity and connection fees were studied as a component of the total fee burden for all AB 1600 fees which is detailed in the Study Session’s October 17, 2017 staff report. Table 3: Water Fund Revenue from Capacity and Connection Fees Citywide Fee Fee Per EDU Water Fund Revenue (over 25 years) Annualized 25 Year Revenue Assumption Potential Rate Impact if not Collected Existing Water Fee $11,322 $ 65,906,293 $ 2,636,251.73 - Water Option 1 $11,872 $ 69,106,912 $ 2,764,276.48 ~0.5% Water Option 2* $15,780* $ 91,855,380 $ 3,674,215.20 ~5% NOTE: *Represents the staff recommendation. Packet Pg 299 11 Table 4: Wastewater Fund Revenue from Capacity and Connection Fees Citywide Fee Fee Per EDU Wastewater Fund Revenue (over 25 years) Annualized 25 Year Revenue Assumption Potential Rate Impact if not Collected Existing Citywide Wastewater Fee $3,830 $22,295,652 $891,826 - Wastewater Option 1 / Option 3 $8,165 / $10,721 $62,406,941 $2,496,278 ~8% Wastewater Option 2 / Option 4* $9,522 / $12,602* $73,356,242 $2,934,250 ~10% NOTE: Assumes catchment area fees would yield total revenue requirement over 25 years. *Represents the staff recommendation. ENVIRONMENTAL REVIEW Modification of rates and charges by public agencies is statutorily exempt from the California Environmental Quality Act (CEQA) under Section 15273 of the Public Resources Code because the change in fees is not intended to fund expansion of capital projects not otherwise evaluated under CEQA. Both Wastewater and Water Treatment Master Plans were evaluated for their respective impacts to the environment and this action to adjust fees merely provides a more equitable distribution of costs associated with envisioned infrastructure. CONCURRENCES As the 2017 Capacity and Connection Fee Study supports the goals and policies found in the City’s General Plan, the Community Development Department concurs with the recommendation. ALTERNATIVES 1. Water Fee Option 1 and Wastewater Fee Option 1. The Council could elect to approve this option, which includes only debt-financed water and wastewater infrastructure in the citywide fees plus wastewater catchment area fees. Option 1 is not recommended as it places a greater portion of the capital improvement costs on existing water and wastewater ratepayers. 2. Wastewater Option 2. The Council could elect to approve Wastewater Option 2, which includes a citywide wastewater fee plus cat chment area fees. Wastewater Option 2 maintains the same cost split between new and existing development as the recommended Option 4. It reduces the citywide fee and increases fees in areas based on capital costs specific to those catchment areas. This option is not being recommended for two reasons. One is having one citywide fee simplifies fee administration. Reason two is current policy does not differentiate among zones of service for existing system users. It applies the “one happy family” or postage stamp approach as opposed to the train ticket approach used with catchment areas. Packet Pg 300 11 3. Wastewater Option 3. The Council could elect to approve Wastewater Option 3, which includes the Option 1 citywide wastewater fee plus catchment area fees, including three ne w catchment areas (Airport, Buckley, and Foothill). This Option yields the same total impact fee revenue as Option 1 with the catchment area lift station costs attributed to the area served by that lift station. Option 3 is not recommended as it places a greater portion of the capital improvement cost on the existing wastewater ratepayer. Attachments: a - February 7, 2017 Study Session Staff Report b - Resolution Amending Water and Wastewater Impact Fees c - Council Reading File - 2017 Water and Wastewater Capacity and Connection Fee Study, by HDR Engineering, Inc Packet Pg 301 11