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8.0. SR 05-03-1993 rll ---\) ( )j .Y of !J! Ell{ ITEM 8 TO: MAYOR & CITY COUNCIL FROM: PAT KLAERS, CITY TOR DATE: APRIL 29, 1993 SUBJECT: JOINT MEETING WITH ELK RIVER UTILITIES INTRODUCTION A joint meeting 5/3/93. This between the City attachment) and Utilities Commission attachment) . with the Utilities Commission is scheduled for is a follow up to the 2/17/93 joint meeting Council and the Utilities Commission (see to consider the recommendation from the that came out of its 4/6/93 meeting (see BACKGROUND . The issues involved in financing needed improvements in the water system are well known and have previously been discussed by the City Council and the Utilities Commission both independently and jointly. The most important fact that must be kept in mind is that the three most immediately needed water system improvements can be financed. The City Council and the Utilities Commission need to work together for the orderly growth of the community to help improve the community employment and tax base. In short, the City Council and the Utilities Commission are partners in the urban growth of the City. WAC. . . WCC. . . WIF. . . ??? At the 4/26/93 City Council meeting, City Attorney, Peter Beck, was in attendance to provide some information to the City Council on the legal ramifications of developing a new water fee called a Water Impact Fee (WIF). At this meeting, Peter indicated that, in reality, the water utility is collecting a Water Availability Charge (WAC) and a Water Connection Charge (WCC) as one. Currently, the water utility collects the WAC at the time of hook up or connection. The City sanitary sewer utility does the same thing with its Sewer Availability Charge (SAC) which is collected at the time of hook up. What was discussed at the 4/26 meeting was changing the policy at the water utility and separating out the WAC and WCC. In this manner, the WCC or WAC could replace the proposed WIF. . Both the WAC and the WCC are provided for by State law, whereas a WIF is not, but could most likely be collected as part of City development proposals. By changing the terminology and acronYm and using a WAC and WCC to collect two fees instead of P.O. Box 490 · 13065 Orono Parkway · Elk River, MN 55330 · (612) 441-7420 · Fax: (612) 441-7425 . . . using the WAC and WIF, it may make it fees from everyone either at the time (if a property is already developed or City Council of a development proposal easier to collect both of development or hook up if no approval by the is required). of the WAC is, When question involve the fees If the City and the Utilities move to a breakdown into a WAC and a WCC, then the question that remains should thiS--fee be collected and from whom? This could strictly be a Utilities Commission issue, but may the City Council if the City ends up collecting one of at the time of development. Another question regarding a WAC and WCC that comes to mind is which fee should be $700 and which fee should be $300. Currently the WAC is multiplied by units (currently $700) for commercial and industrial buildings when the facility is hooked up to the utility. In this regard, it may be appropriate to have the WAC be higher than the WCC. The questions regarding the mechanics of collecting these fees that needs to be answered are; how can both of these fees be collected from all new customers, when is this fee collected, and what is the level of City involvement with these fees? NEEDED REVENUES A final question regarding the WAC and WCC is how much revenue is needed to finance the three most immediate water system needs. Above and beyond the three most immediate water system needs, a financial formula needs to be developed whereby funds are reserved for the longer term water system needs and the fee structure must be set up to include future expenses. Again, this could be strictly a Utilities Commission issue if the City is not involved in collecting some of the fees. Regarding how much is needed, everyone should review the chart attached to the 4/6/93 Utilities Commission minutes. In analyzing this chart, it is important to closely review the assumptions that were made in putting together this analysis of water costs. The assumptions include a 30 year bond (which is desired to be less), a low interest rate, a City contribution to both the west and northeast towers, the time frame as to when the improvements take place, a growth factor of 4%, and an increasing number of connections to the water system as growth occurs. The more assumptions that are put into a formula, the more uncertainties there are about the conclusions and, therefore, more questions about what fee level is needed to finance the necessary improvements. One assumption in the chart that I know the City Council wants to discuss is the City contribution for the northeast tower. Whatever conclusion is reached at this meeting, it goes without saying that the revenue stream needs to be closely monitored in the next few years. . WHEN TO ORDER NORTHEAST IMPROVEMENTS? . Above and beyond the financing questions should the water improvements take This question relates to when the need system to be in place. There is question, but it appears that we are system authorized at this time, if we point. At the 4/6 Utilities Commission meeting, the only proposal that had been rejected by the City due to a lack of utilities was a SuperAmerica development plan. At the 4/6 meeting, there was only Phase I of Hillside Addition; CherryHill Bluffs 2nd Addition was still a concept, and, as we all know, there is no approved plans for a shopping center west of Highway 169. At the 4/6 meeting, it appeared that there was no need for the water system improvement to be authorized and in operation by 10/31/93 versus 6/1/94, especially considering that there was limited hook up potential with new developments only being at the concept level and not as approved proposals. (Additionally, it should be noted that if any shopping center plans get approved in the summer of 1993, it will be difficult for the street system to be constructed this season and, therefore, for any business to be in operation before 6/1/94 as street work will need to be completed in May/June 1994). is the issue of when place in the northeast. exists for the water no exact answer to this close to needing the are not already at that Another factor in ordering the water tower improvement project is City ownership of the site. The Hillside site was authorized to be purchased on 3/22, and on 4/6 the City did not have title to the site. If necessary, the City could condemn property for a water tower but we try to avoid this type of situation. On 4/27 the City Attorney received the legal description for the site and entrance to be incorporated into the purchase agreement. It is not desirable to approve water tower bids and authorize the tower construction on a site until the site is owned by the City. What also makes this water tower timing issue especially difficult is the time necessary to construct these improvement. Even if the water tower had already been approved in order to be in operation by October 31, 1993, it still would have had to been taken out of service to be painted on the inside in May/June, 1994. It now appears that we have a number of months available before the water tower needs to be authorized in order for it to be totally completed around June 1, 1994. An important factor in this part of the timing issue is that the inside of the water tower cannot be painted during cold weather. . There is no magic answer as to when a water tower should be authorized to be constructed and this issue certainly needs to be reviewed by both the City Council and the Utilities Commission at this 5/3/93 joint meeting. Ie e e JOINT MEETING OF THE ELK RIVER CITY COUNCIL AND THE ELK RIVER UTILITIES COMMISSION HELD AT THE ELK RIVER POWER PLANT WEDNESDAY, FEBRUARY 17, 1993 Councilmembers Present: Mayor Duitsman, Councilmembers Scheel, Dietz, Farber and Holmgren (arrived at 6:15 p.m.) Commission Members Present: Jim Simpson, Jim Tra11e and George Zabee Staff Present: Pat Klaers, City Administrator; Terry Maurer, City Engineer; Lori Johnson, Finance Director; Bill Birrenkott, Utilities General Manager; Glenn Sundeen and Bob McCartney, Elk River Municipal Utilities Others Present: Rick Foster, John Weicht and Don Heinzman Mayor Duitsman called the meeting to order at 6:10 p.m. Mayor Duitsman gave a short introduction of the topic relating to financing water towers. He then turned the meeting over to Bill Birrenkott to discuss the information that has been reviewed by the Utilities Commission. Roger Holmgren arrived at this time. Bill Birrenkott reviewed a memo he had written regarding the water tower financing issue. He indicated that previously the need had never come up to increase Water Access Charge (WAC) fees in order to set aside funds for a water tower. Bill indicated that in the past, WAC fees have been mainly used for watermain improvements and expansions. Recently, accumulated WAC fees have also been used for the financing of the well and treatment facility near Orono Park. The WAC fees have recently increased from $300 to $700 per connection. This increase will generate funds to help finance future wells that are needed, but it is uncertain as to whether or not any funds from this WAC fee will be available for the financing of water towers. Bill Birrenkott introduced the idea of a Water Impact Fee which could be charged to the developer of vacant lands and the money would be set aside to pay for water towers. Bill also discussed the possibility of using TIF funds and requested that the Utilities payment of $120,000 paid to the City to fund the 1985 TIF issue be refunded to the Utilities and be applied toward the construction of the next water tower. Mayor Duitsman asked whether projections had been made as to the and revenues that would be received over the next few Birrenkott indicated that the net water income, excluding the now approximately $120,000 per year, but no future projections water fees years. Bill WAC fees, is had been made. utilities Commission member, George Zabee, stated that there were several criteria he felt the utilities should look at when financing water towers: . . :. City Council/Utilities Commission Minutes February 17, 1993 Page 2 1. The method must be equitable and consistent. 2. It should not affect rate payers. 3. Developers should have to pay all associated fees prior to development. 4. If development doesn't occur, the Utilities must be able to handle the payments. 5. A reserve must be set aside for emergencies. George indicated that he agreed with the concept of a water impact fee. A brief discussion was held regarding bonding for this project. Lori Johnson, Finance Director, indicated that there were several methods available; one being through water revenue bond, the other being a General Obligation Bond. She indicated that pure revenue bonds are rather rare in Minnesota and indicated there were several negatives including a higher interest rate, a one year of debt service reserve requirement, and a pledge of 120% of revenues to debt service. These factors make revenue bonds an expensive and less desirable financing mechanism. There was considerable discussion regarding the proposed water impact fee policy and how it would be applied equally to new development and existing development currently not served by the water utility. All concurred that a policy would need to be approved in order to make collection of the Water Impact Fees (WIF) equitable. Mayor Duitsman indicated that TIF monies are available from TIF District No. 4, to help finance the water tower needed near Orono Park. Commissioner Tralle gave background information on TIF No. 4 and the RDF settlement, indicating that funds would be available from the source. Mayor if the 10. 10. Duitsman questioned how much additional water storage would be needed Council approved the extension of water utilities along East Highway Terry Maurer discussed water improvements needed to serve East Highway Councilmember Scheel expressed concern over the City wells causing problems with other wells in the area because they are all in the same aquifer. City Engineer, Terry Maurer, explained that this would not be a problem. Commissioner Simpson and Bill Birrenkott both indicated that the water utility would be able to support the debt to construct a well in the western area and a well in the northern area. Mayor Duitsman asked whether the water impact fee would be a charge just to developers or whether everyone hooking into the water system would need to pay the Water Impact Fee. Pat Klaers indicated that there was development proposals as fees are that the WAC fee be raised in order a problem in collecting the WIF on collected only on plats. He suggested to cover an amount which would be ./ . . City Council/Utilities Commission Minutes February 17, 1993 Page 3 charged as a Water Impact Fee, therefore, anyone hooking into the water system would pay both fees. There was discussion with developers Rick Foster and John Weicht regarding the payment of fees. Rick Foster indicated that he felt the up front fees were excessive now and that adding additional fees would drive development out. Councilmember SCheel agreed, indicating that the Council must figure out a way to keep development fees low. The City time of of water further help the Council agreed that everyone should pay a WAC and WIF fee at hook up. Mayor Duitsman indicated that he would like to see $60,000 utility profit annually dedicated to pay for water towers. He indicated that the City would be willing to use TIF reserve funds to Utilities fund the water towers. The City Administrator summarized the discussion and stated that this meeting related to an overall plan to help finance future water towers and wells and did not necessarily concentrate on any specific area of the community; that there was an agreement that a fee needs to be collected from everyone that hooks up to the water system in the future and that this fee could consist of the WAC and an assessment or Water Impact Fee. The City Administrator indicated that the Utilities and City staff would get together to review all available revenues and costs for future improvements in an effort to determine a recommendation on an appropriate fee and method for collecting the necessary fee. The utilities Commission agreed to authorize bids for the construction of the water tower in the high pressure zone. The joint meeting of the Elk River City Council and the Elk River Utilities Commission adjourned at 8:15 p.m. Respectfully submitted, ~J2j ~ Lori Johnson Finance Director . 4) 6) . -\./ -\. ... ,. \ \ .1 ./' fj ~edF. J V l.' i\ APR 1 2 199~ ~-v \;., - ELK Rly'"ER LvI1.:NICIP.~..L L:TILITI.:::.S .::: K~ng .'\ \ ~:1U~ Eik R:\,~~. \/inn::sllt:l ::~:Il ;:):"otlt: "ij.j ~:..'J"ij UTILITIES' CO~~ISSIONMINUTES April 6, 1993 3:00 P.M. Present Were: James Tralle James Simpson George Zabee President Vice Chairman Trustee Others present: Bill Birrenkott Glenn Sundeen Don Heinzman Terry Maurer Pat Klaers General Manager Line Superintendent Elk River Star News Maier Stewart & Assoc City Administrator 1) 2) The meeting was called to order at 3:00 P.M. by President Tralle. Motion by Mr. Simpson seconded by Mr. Zabee to approve the agenda. The motion carried. 3 ) Motion by Mr. Simpson seconded by Mr. Zabee to approve the minutes of the previous meeting as distributed. The motion carried. . The General Manager presented the Commissioners with several scenarios to finance future tower exnansion and wells f=r the water department. The variables which were discussed were the Water Connection Fee, the percentage of rate generated cash to be applied to tower and well construction, impact fees, and length of loan financing. Pat Klaers presented a case in which the there would be no "impact fees" which was discussed to some degree. Motion by Mr. Simpson, seconded by Mr. Zabee, to request the City Council to pass an ordinance requiring an "impact fee" to developers of $300.00 per residential lot to be assessed at time of lot closing. The motion carried unanimously. The Commissioners also agreed that the Utilities Commission would, at future dates, raise the Water Connection Fee 5% per year until a fee of $1,200 is reached. The Commissioners also agreed that a philosophy of applying 20% of rate generated cash would be used to fund future tower and well imorovments. The Commissioners also agreed that all bonds to be issued would carry a term of 30 years with a "call priviledge". 5 ) Glenn Sundeen presented the Commissioners with a suggested change to the Safety Manual.' Motion by Mr. Simpson, seconded by Mr. Zabee, to incorporate the suggested change to be attached to and become a part of these minutes. The Motion carried. Developer fees for underground residential developments were discussed. Motion bv Mr. Simpson, seconded by Mr. Zabee, to charge developers for underground electricity to lot corners $320.00 for lots with sewer and water and $420.00 for lots without sewer and water. The Motion carried. The Commissioners also instructed staff to review these charges annually. ... . ", 7) The General Manager reviewed with commissioners the status of a possible lawsuit regarding the electrical accident last summer. 8) The Line Superintendent reported on the status of construction projects and operating conditions. 9) Motion by Mr. Zabee, seconded by Mr. Simpson to approve the monthly expenditures. The motion carried. 10) The next regular meeting of the commissioners was set for Tuesday, May 4, 1993 at 3:00 P.M. at the Utilities Office. 15) Motion by Mr. Simpson seconded by Mr. Zabee to adjourn. The motion carried. 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