5.6. SR 08-01-1994
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ITEM 5.6.
MEMORANDUM
TO:
MAYOR & CITY COUNCIL
FROM:
PAT KLAERS, CITY ADMINISTRATOR
DATE:
JULY 28,1994
SUBJECT: $3,800 ASSESSMENT RATE
The issue of charging $3,800 on a city-wide basis for trunk sewer and water
has previously been discussed and reviewed by the City Council. This is not
an easy decision to make, but we need to get some direction from the Council
on how to proceed with assessing out the benefits for trunk sewer and water
in the northeast and other sections of the City.
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First of all, it should be noted that this is not an Assessment Manual issue.
The Assessment Manual is not a City ordinance and has often changed at
City Council meetings. The issue in the northeast area relates to the cost of
public improvements, the benefit of having trunk facilities available for the
opportunity to develop in an urban manner, and charging an established rate
on a city-wide basis.
Attached to this memo is my previous memo on this topic along with a letter
from Mr. Foster who is the major property owner in the northeast area.
The $3,800 amount was not arbitrarily or artificially created. This amount
was established for the western area project based on the estimated cost of
construction (over time) and the estimated assessment area for the trunk
system. City Council action on such items as two years interest free
assessment deferrals for tillable green acres, and deleting trunk assessments
for such areas as the Sandpiper Estates subdivision will affect whether or not
this $3,800 figure is sufficient to pay the trunk cost. We may have to rely on
prepayments of the trunk assessments in order to have this amount cash flow
at the end of the project.
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Also, the $3,800 figure was used in the northwest area, and this figure was
also a fairly accurate calculation for Dart of the actual construction costs.
The total amount for this project is still very much uncertain. This is due to
the timing of when water will be available in this area, when the deferred
assessments come on to the tax roll, and what the increased cost for
construction will be when the project is totally completed.
P.O. Box 490 · 13065 Orono Parkway · Elk River, MN 55330 · (612) 441-7420 · Fax: (612) 441-7425
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Regarding $3,800 in the east part of our community, information is too
preliminary at this time to know whether or not this figure will be sufficient.
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The focus of the Council's discussion on this topic relates to the northeast
area of the City. The City began applying this $3,800 amount to the
northeast area somewhere around 1991-92. This figure was based on our
experience in the northwest area and in the west area. This figure was also
based on information in the 1991 and 1992 area-wide study for the northeast
area. As the Council may recall, we were having discussions about the need
and financing of a water tower in this vicinity at that time. The cost of just
the sewer system, water system with the booster station and pressure
reducing valves, was estimated at $3,500 per acre. This was well before any
commercial project or sewer project between Hillside and the existing trunk
sewer line was ordered. The City used the $3,800 amount for Hillside I and
II and for CherryHill Bluffs in order to be consistent and uniform on a city-
wide basis and due to the uncertainty as to when the project would happen,
and the actual costs for the improvements. This was deemed to be an
appropriate amount to "buy into" the urban system and to finance the
necessary improvements. The Council should note that this $3,800 amount
was paid for the CherryHill Bluffs subdivision to flow into an existing sewer
pipe where no additional construction costs were incurred. This was simply
the price for CherryHill Bluffs to buy into the urban system and develop in
an urban manner and this was consistent throughout the City at that time.
My previous memo outlines some of the thoughts on this issue, and staff
continues to believe that $3,800 on a city-wide basis is appropriate. We do
not dispute that the actual cost in the northeast area may be slightly lower,
but how much lower is debatable based on the unknown total costs, lateral
benefits, total assessment area, and when actual payment of Green Acre
properties will be received. It is clear that the benefit to developers exceeds
$3,800 per acre for the right to hook up to the urban system and develop in
an urban manner.
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ITEM 8.3
MEMORANDUM
TO: MAYOR & CITY COUNCIL
FROM: PAT KLAERS, CITY AD~1ft
DATE: JULY 21,1994 { Y
SUBJECT: $3,800 TRUNK SEWER AND WATER
ASSESSMENT RATE
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For the past six months or so, the City Council has debated the existing City
policy of charging $3,800 per acre for trunk sewer and water improvements.
A major area of concern regarding this policy is in the northeast area of our
urban service district. At this time" the northeast area is the smallest service
area, has fewer property owners involved when compared to other districts,
and appears that it will be the quickest to completely develop.
The City Engineer and City Attorney will be in attendance at this Council
meeting as well as local developer, Rick Foster, to help facilitate the City
Council's discussion on this topic.
The City has followed an assessment policy of charging $3,800 per acre for
tr~ sewer and water improvements. This dollar amount is assessed out to
benefited property owners on a gross acreage basis regardless of its zoning
classification. The Assessment Manual technically calls for this amount to be
assessed on a project area basis, but the City has been following the practice
of charging this cost out on a city-wide basis.
The major issue to be discussed by the City Council is whether or not the cost
for trunk utilities should be different for different project areas or whether or
not the cost should be consistent and uniform for the same utility throughout
the City.
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A second issue to review is if the assessments should be based on actual costs
or on estimates. We currently use estimates based mainly on our practice of
assessing out the benefits for public improvements before these
improvements are actually completed in order to avoid problems with
assessment appeals. The length of time for completing an entire project area
P.O. Box 490. 13065 Orono Parkway. Elk River. MN 55330. (612) 441-7420. Fax: (612) 441-7425
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(i.e., the Western Area project goes all the way out to Waco Avenue) is also a
factor.
An additional issue for City Council discussion is the possibility of charging
trunk assessment based on the zoning classification in that project area and
not on a gross acreage basis.
Some comments regarding this $3,800 per acre policy includes the following:
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. The $3,800 per acre amount in some cases may appear to be higher
than the actual costs in the area, but this assessment rate also has
to cover such items as:
o Green Acre assessments that are deferred.
o The 1992 Assessment Policy change whereby two years
interest free assessments are offered for "tillable" green acres
property.
o Covers "newly identified" undeveloped areas that are taken
out of the original total assessable area due to such items as
wetlands or ponds.
o Covers project change orders such as the recent change to a
30" casing instead of the proposed 20"-24" casings for the
trunk sewer and water underneath Highway 169 into the
Hillside development area.
o Covers special cases where part of the trunk system is
installed but not assessed out until the other part of the
trunk system is in place; such as for the Nord property in the
northwest area and the Hillside Fourth property near the
water tower.
. The assessment amount provides for the identical cost for all
property owners/developers for trunk improvements; this provides
for a consistent and uniform assessment policy.
. The amount under discussion is an assessment figure and not a
City fee; therefore allowing this amount to be paid over time rather
than up front when a plat is recorded. The City could change its
policy to a fee basis and designate the fee to cover trunk
sewer/water assessments and any other utility related expenditure.
. Typically the City will not know if the $3,800 amount is
appropriate until the entire project area is developed. The City is
currently starting Phase II of the Western Area project which may
take three or four phases to complete. This $3,800 amount could be
high or low depending on the actual cost of the improvements and
the total assessment area for these improvements. It will take
years to determine if the cost is completely accurate and by that
time the original property owners or developers may be long gone
.
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and it would be impossible to obtain additional funds if this $3,800
amount is low.
· The Council can change the City assessment policy at any meeting,
and has done so in the past, in order to treat property owners fairly.
Therefore the City needs any surplus funds that may be available
to payoff the bonds if policy changes take place and the City has a
shortage offunds to meet its bond obligation (We may again see an
assessment policy change for the Sandpiper Estates area). If the
$3,800 assessment amount is not sufficient to meet the bond
repayment schedule, then, at the end of the project, the City will
need to tax the entire City for the necessary funds to meet our bond
obligation.
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If the City did not assess out one established, uniform, and consistent
amount for trunk improvements throughout the City, we may very well see
the western area at $3,800 per acre, the northwest area at $4,200 per acre,
the northeast area at $3,400 or less per acre, and the east area at $4,600 or
more per acre for the trunk sewer and water system. The question becomes,
"does this make sense or should everyone pay the same amount for the same
utility and the same benefit?" The benefit to the landowner or developer for
the opportunity to develop the property in an urban manner exceeds the
$3,800 per acre amount regardless of the actual cost for the improvements.
The City could conceivably assess out the improvements on a zoning district
basis, but issues arise regarding reassessment for future rezonings and what
you charge PUD's, plus the difficulty from an administrative point of view in
tracking all of these activities. Also, there is a legal question of whether or
not we could reassess out trunk costs with a rezoning request or whether or
not we have to wait until a plat follows the rezoning request. This could
caus~ a delay in receiving funds to payoff the bonds. Such a rezoning district
system would be more complex to administer and would open up the City to
more criticism due to more "judgment" from the City being necessary. For
example, we could have separate assessment rates for the following sewer
and water areas: Rlc, Rid, Rle, R2a, R2b, R3, R4, the C District (Cl, C2, C3)
and the I District (1-1 and 1-2). Finally, assessing out by zoning district still
does not eliminate the guesswork in.establishing assessment amounts if the
entire project area is not completed in one phase or if the assessment takes
place before bids are awarded.
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There is clearly no right or wrong answer to the charging for trunk
improvements. The establishing of an assessment rate before a project area
is 100 percent completed is an art and not an exact science. The City is
looking for a fair, consistent, uniform and equitable assessment method on a
city-wide basis, plus something that is relatively easy to administer and
which will cover all of our expenses regardless of changes in our assessment
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method. If any "extra" funds are available at the end of a project, these funds
will remain in a City designated reserve to help offset future utility costs or
major repair/maintenance expenditures.
Staff continues to support the $3,800 per acre assessment policy on a city-
wide basis regardless of zoning classification and recommends that the City
Council confirms this policy.
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Riverside Development Company
July 25, 1994
Mayor Hank Duitsman
City of Elk River
13065 Orono Parkway
P.O. Box 490
Elk River, MN 55330
SUBJECT: TRUNK ASSESSMENT FEES
Dear Mayor Duitsman:
Thank you for the opportunity to discuss this issue with you and
the City Council.
As a local real estate developer, I am very concerned about the
method and rationale used to determine the $3,800 per acre
assessment fee being placed o~ all development in this City. This
fee hits me unjustifiably hard as the Hillside Estates and Hillside
Crossing subdivisions continue in their logical development. The
raw land carried a higher purchase price due to their proximity and
eventual accessibility to the municipal trunk lines already planned
to be established in this northeast portion of the City. Further,
the assessments are already being incurred by me for these
properties.
These existing conditions actually validate a more accurate cost to
this benefit area of $1,700 to $1,800 per acre, not the
artificially created fee of $3,800 per acre. The result of this
subjective fee is an unjust subsidization of development in other
parts of the community, and in some locations where development has
not begun, but is only hoped to occur sometime in the future.
Please keep in mind that this letter is not to infer that a trunk
fee is not applicable, but is intended to focus on the arbitrary
method that it was established. Fees established by the City are
required to follow the principles outlined in the City's own
Assessment Manual; that is, to assess a fee based on the actual
cost of the pro;ect, and then assessed to the area which eventually
receives the benefit of the project. The City has deviated from
this manual in the past, but has decreased the fees, not
subjectively increased them.
241 Main Street. Suite 4 * Elk River. Minnesota 55330
(612) 241-0714 * Fax (612) 441-4575
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Riverside Development Company
This adjustment is only logical and follows the
established by the City, as any business must do when
work in this City. It is only common sense that the
its own rules and regulations.
S;;Z)c~
Richard C. Foster
TrunkE"ee.l
241 Main Street. Suite 4 * Elk River. Minnesota 55330
(612) 241-0714 * Fax (612) 441-4575
guidelines
they try to
City follow