WINDSOR WATER DISTRICT AGENDA REPORT

Transcription

1 ITEM NO. : 10.2 WINDSOR WATER DISTRICT AGENDA REPORT Windsor Water District Meeting Date: February 15, 2017 To: From: Subject: Chair and Water District Board Toni Bertolero, District Engineer Resolution of the Windsor Water District Approving Updated Wastewater Capacity Fees Recommendation to the Windsor Water District Board: Adopt a Windsor Water District Resolution approving updated wastewater capacity fees for future development within the Town of Windsor and superseding the existing fees established by WWD Resolution Nos and Background for Wastewater Capacity Fees: On December 4, 2013, the Board of Directors of the Windsor Water District (Water District Board) adopted WWD Resolution No updating wastewater capacity fees. On May 21, 2014, the Water District Board adopted WWD Resolution No approving procedures for determining wastewater capacity fees for new small wineries within the Town of Windsor. The last comprehensive analysis of wastewater capacity fees occurred in In addition, the wastewater capacity fees have been adjusted each year for inflation. At present, wastewater capacity fees are based on the value of the existing wastewater system. This methodology is referred to as the system buyin method for establishing fees. Section (b) of the Municipal Code references this basis for the fees. In 2014, Brelje and Race performed an analysis to develop a methodology for future small winery development and the findings and recommendations were presented in a report entitled Small Winery Capacity Fee Study dated April 2014 ( Small Winery Report ). Small wineries are defined as wineries with an annual wine production of 25,000 cases or less. After the Small Winery Report was released and the District adopted the small winery methodology in May 2014, new data came out because of the District s most recent discharge permit issued by the Regional Board. The new data was a result of the Regional Board s new requirement that the influent biological oxygen demand BOD, which is a measure of the organic strength of the waste, be measured over a continuous 24hour period. In prior years, this test was performed over an 8hour period. This change in protocol resulted in an apparent 20 to 25 percent increase in influent BOD loading compared to historical values, and is necessitating a new analysis for small wineries. In 2015, Public Works engaged the services of The Reed Group, Inc. to update the District s wastewater capacity fees. Capacity fees are onetime fees charged for new service connections to the District s wastewater collection, treatment, and disposal system. The fees are intended to reflect the estimated reasonable cost of capacity in the system and fee revenue is used to help pay for the capacity needed to serve future development. 1 of 4

2 Discussion: The Reed Group s Report presents proposed wastewater capacity fees for this fiscal year and describes the fee methodology, underlying data and assumptions and benefits of the methodology for establishing fees. An overview of the Report s findings and recommendations will be provided at the Council presentation. With respect to small wineries, the apparent increase in BOD loading has called into question the conclusion of the former Small Winery Report in terms of the assumed overall treatment capacity of the Treatment Plant. While staff is confident that there is sufficient capacity to treat the District s residential and standard strength commercial customers, it is unclear how much additional capacity is available for future nonstandard strength customers, such as wineries and breweries. Staff is working with its consultant, Hazen and Sawyer, on determining how much capacity is available for nonstandard strength users. While the study has not been completed, Hazen and Sawyer has preliminarily confirmed that there is not sufficient capacity to include certain nonstandard strength customers without any kind of pretreatment system. For this reason, staff recommends that Resolution No , which sets forth the methodology for calculating wastewater capacity fees for small wineries, be superseded and that going forward wastewater capacity fees for small wineries be calculated using the methodology for other nonstandard strength users set forth in the proposed Resolution. In all instances, new connections to the wastewater system will not be allowed unless there is sufficient capacity to treat and dispose of the anticipated waste generated. The proposed Resolution for the Water District Board s consideration incorporates five key elements: 1. Maintains the system buyin method for the basis of establishing the fees. 2. Establishes who would be subject to the fees and the area impacted by the fees. 3. Establishes the proposed fees for the various categories of residential and nonresidential development. 4. Establishes how fees are calculated for nonresidential development including a change in methodology that standard, nonresidential development fees are based on water meter size and wastewater strength categories, and not on estimated sewer flow and strength categories. 5. Establishes how fees are calculated for residential and nonresidential development. 6. Supersedes Resolution No , which sets forth the methodology for calculating wastewater capacity fees for small wineries, and provides that the methodology for determining wastewater capacity fees for small wineries be the same as the methodology for other nonstandard strength users. The Report, entitled Water and Wastewater Capacity Fee Study dated February 7, 2017 and prepared by The Reed Group, Inc., is presented in Exhibit A in the attachment to this report. In all cases, the proposed fees are less than the current fees; for example, the proposed fee for a standard single family home is nearly 18 percent less. The schedule for the proposed wastewater capacity fees is presented in the table below. 2 of 4

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4 Since water and wastewater capacity fees are being considered by the District Board, the table below illustrates both fees as compared with other municipalities in Sonoma County. Water and Wastewater Capacity Fees for Local Agencies in Sonoma County Water Capacity Fee Wastewater Capacity Fee Combined Capacity Fees City of Petaluma $ 3,758 $ 7,720 $ 11,478 City of Santa Rosa 4,908 6,678 11,586 Town of Windsor (proposed) 3,864 9,371 13,235 City of Healdsburg 5,834 9,676 15,510 City of Cloverdale 6,270 9,728 15,998 Town of Windsor (current) 8,135 11,380 19,515 A meeting with the development community was held on February 2, 2017 discussing the proposed fees. Fiscal Impacts: As proposed, the fees could result in decreased capacity fee revenue as compared with the current fees. At the end of FY , the Water Reclamation Capital Fund has a preliminary final working capital balance of $171,887. Under the system buyin methodology, wastewater capacity fee revenue can be used for any wastewater capital improvement project, as well as related debt service. At present, the wastewater capital improvement program is primarily comprised of system rehabilitation and upgrade projects. Environmental Review: This action does not constitute a project within the meaning of California Environmental Quality Act (CEQA) Guidelines Section and requires no environmental review. Attachment: 1. Draft Resolution Exhibit A: Report Water and Wastewater Capacity Fee Study, dated February 7, 2017, The Reed Group, Inc. Prepared by: Toni Bertolero District Engineer Reviewed by: Camille Kazarian Assistant General Manager Recommended by: Linda Kelly General Manager 4 of 4

5 ATTACHMENT 1 RESOLUTION NO. XXXX17 WWD A RESOLUTION OF THE WINDSOR WATER DISTRICT BOARD APPROVING UPDATED WASTEWATER CAPACITY FEES FOR FUTURE DEVELOPMENT WITHIN THE TOWN OF WINDSOR AND SUPERSEDING THE EXISTING FEES ESTABLISHED BY WWD RESOLUTION NOS AND WHEREAS, the General Plan ( General Plan ) of the Town of Windsor ( Town ) was adopted March 13, 1996 and amended on July 17, 1996 by Resolution on April l 2, 1997 by Resolution 62297, on January 6, 1998 by Resolution 679A98, on September 15, 1999 by Resolution and on March 15, 2000 by Resolution No , on February 19, 2003 by Resolution , on March 19, 2003 by Resolution , on July 20, 2005 by Resolution , and on March 4, 2009 by Resolution ; and WHEREAS, the General Plan applies to a Planning Area which includes the Town and land outside the Town in unincorporated Sonoma County which must also be considered to properly plan for the Town s future; and WHEREAS, the Town Planning Area encompasses approximately 13,200 acres, 4,130 of which are within the Town and 9,070 of which are outside the Town in unincorporated Sonoma County; and WHEREAS, the Town Planning Area is shown on the Land Use Map contained in the General Plan; and WHEREAS, the General Plan summarizes the policy for financing the cost of improvements required to accommodate new development in the Town as follows: the community services and facilities policies make clear that capital facility needs generated by new development should be financed by new development, and that accordingly, future development in the Town should pay its fair share of needed infrastructure (see General Plan pp. 34, 35, 431, 435, 84); and WHEREAS, a Program Environmental Impact Report ( EIR ) was prepared for the General Plan pursuant to the California Environmental Quality Act ( CEQA ) and certified by the Town Council on March 13, 1996 by Resolution No ; and WHEREAS, the Windsor Water District ( District ) provides water reclamation services within the Town boundaries and the District s service area; and WHEREAS, the water reclamation services the District provides consists of sewer collection, wastewater treatment, recycled water distribution and water reclamation storage and disposal; and WHEREAS, the District s wastewater, water reclamation and recycled water system ( Water Reclamation System ) is operated as a selfsupporting utility enterprise; and 1 of 10

6 WHEREAS, Article 6 of Chapter 6, Title XVI of the Code of the Town of Windsor ( Municipal Code ) establishes a wastewater capacity fee applicable to development with the Town; and WHEREAS, the wastewater capacity fees currently applied to new users were last updated by Resolution No adopted by the District Board on December 4, 2013; and WHEREAS, the wastewater capacity fees for new small wineries were last updated by Resolution No ; and WHEREAS, the District has engaged The Reed Group, Inc. to conduct a study to assist the Town with updating its wastewater capacity fees; and WHEREAS, the District has engaged Hazen and Sawyer to update the small winery capacity fee (Study) by performing a new plant capacity evaluation and analyzing more recent data from small wineries in town; and WHEREAS, The Reed Group has prepared a report dated January 19, 2017 entitled Water and Wastewater Capacity Fee Study ( Report ), a true copy of which is attached hereto as Exhibit A; and WHEREAS, the Report presents proposed wastewater capacity fees for future development and describes the fee methodology, underlying data and assumptions, and benefits of the changes to the methodology; and WHEREAS, the Hazen and Sawyer Study has not been completed and the District desires to revise the methodology for calculating the wastewater capacity fees for small wineries to be the same as for all other nonstandard commercial users; and WHEREAS, the Municipal Code provides that the amount of wastewater capacity fees and administrative guidelines for implementing such fees shall be established by adoption of a Resolution by the District Board; and WHEREAS, in accordance with the California Government Code section 66016(a), at least 14 days prior to the public hearing at which this Resolution was adopted, notice of the time and place of the hearing was mailed to eligible interested parties who filed written requests with the District for mailed notice of meetings on new or increased fees; and WHEREAS, in accordance with California Government Code section 66016(a), 10 days prior to the public hearing at which this Resolution was adopted the District made the Report available to the public; and 2 of 10

7 FINDINGS WHEREAS, the Board of Directors of the Windsor Water District ( Water District Board ) finds as follows: A. The purpose of the wastewater capacity fee set forth in this Resolution is to recover the fair share buyin costs, as well as the capacity expansion capital costs and wastewater debt service, necessary to accommodate new users without burdening existing users. B. After considering the Report, the testimony received at this noticed public hearing, the agenda statements, the General Plan, the General Plan EIR, the Report and all correspondence received (together, Record ), the Water District Board approves and adopts the Report and incorporates such Report by reference herein, and further finds that future development in the Town will generate the need for water reclamation facilities consistent with the General Plan. C. In adopting the wastewater capacity fee set forth in this Resolution, the Water District Board is exercising its powers under California Government Code section D. The Record establishes: 1. That there is a reasonable relationship between the use of the wastewater capacity fee set forth in this Resolution and the needs created by, and the benefits accruing to new development in the Town, both residential and nonresidential. 2. That the amount of the wastewater capacity fee set forth in this Resolution does not exceed the estimated reasonable cost of providing wastewater capacity to new development in the Town. 3. That the method of allocation of the wastewater capacity fee set forth in this Resolution to a particular development, which is determined by taking the current value of assets divided by the current number of customers and is commonly referred to as the buyin methodology, is a common and generally wellaccepted methodology for calculating capacity fees and charges. 4. That the method of allocation of the fee set forth in this Resolution to a particular development bears a fair relationship, and is roughly proportional, to each development s burden on, and benefits from, the Water Reclamation System funded by such fee. 3 of 10

8 ADOPTION OF FEE NOW, THEREFORE, the Board of Directors of the Windsor Water District does resolve as follows: 1. Definitions. a. Accessory Dwelling Unit (ADU) means either an attached or detached residential dwelling unit which provides complete independent living facilities for one or more persons and includes permanent provisions for living, sleeping, eating, cooking, and sanitation on the same parcel as the singlefamily dwelling is situated as defined under Government Code (i)(4) b. Development means the construction, alteration or addition of any building or structure within the Town of Windsor, within the Windsor Water District, and within any areas served by the Windsor Water District outside the jurisdictional limits of the Town. c. Bed and breakfast inn means a residential structure as defined under the Town s Zoning Ordinance and is classified as residential or nonresidential development depending on the number of guest rooms. d. BOD is biochemical oxygen demand and is a type of pollutant loading to the water reclamation system measured in milligrams per liter (mg/l). e. Caretaker housing is a residential development that is accessory to a nonresidential development as defined under the Town s Zoning Ordinance. f. ESD means equivalent single family dwelling and is a way to express sewer flow amongst different types of customers by converting all classes of customers to a common unit of expression; 1.0 ESD is equivalent to 200 gallons per day of flow, 200 mg/l of BOD and 175 mg/l of TSS. g. Fee means a wastewater capacity fee as established by Town of Windsor Code and has the same meaning as capacity charge under Government Code Fee. h. Granny unit means an accessory dwelling unit, for purposes of determining the i. Guest house means a temporary living quarter within an existing primary residence without kitchen facilities as defined in the Town s Zoning Ordinance. j. Live/work facilities is defined as a mixeduse (residential and nonresidential) development as defined in the Town s Zoning Ordinance. k. Mixed strength uses means a development with two or more types of development and one or more type of development that is a medium or high strength user (such 4 of 10

9 as office/restaurant, or gas station/market/car wash, residential/laundromat, etc.) and does not include a nonstandard strength commercial user. l. Multifamily or Multiple family means a residential development with two or more dwelling units including but not limited to duplexes, apartments, condominiums, townhouses, and mobile home parks as defined in the Town s Zoning Ordinance. m. Nonstandard strength means a wastewater characteristic that may be unique due to unusual wastewater flow volume or strength, such as for wineries, breweries, food processors and other food and beverage producers. n. Single Family means a single family dwelling unit development as defined in the Town s Zoning Ordinance. o. Strength factor means a factor assigned to a type of nonresidential development that establishes low strength, medium strength and high strength wastewater classification and considers flow and pollutant loading of that wastewater; strength factors for special, very high strength development is established by special formula and calculations. p. TSS is total suspended solids and is a type of pollutant loading to the water reclamation system measured in milligrams per liter (mg/l) 2. Wastewater Capacity Fee Imposed. In accordance with California Government Code 66013, a Fee shall be imposed and paid at the times, and in the amounts and otherwise apply and be administered as prescribed in this Resolution on all new, altered or expanded wastewater service connections to the water reclamation system based on the number of ESDs discharged by the development. 3. Time for Imposing Fee for Residential Subdivisions. In accordance with California Government Code 65961, the Fee for subdivisions for single family and multiple family subdivision development for which tentative or parcel maps are required pursuant to the Subdivision Map Act (California Government Code et seq.) shall be imposed at the time of setting the conditions that apply to the tentative or parcel map for such residential subdivision development, as applicable. Payment of the Fee shall be deemed to be a condition of all such tentative or parcel maps. Notwithstanding this Section 3, the time for payment of the Fee for all development, including single family and multiple family subdivisions, shall be as specified in Section 4, below. 5 of 10

10 4. Time for Fee Payment. a. A Fee shall be charged and paid for each single family and multiple family residential development, for each nonresidential development, including commercial, industrial and office development, and for each mixed development upon issuance of the building permit for such development. b. A Fee shall be charged and paid for each change in use of District water reclamation system capacity that results in an increase to the number of ESDs currently on file for the development being redeveloped or altered. c. A Fee shall not be reimbursed for each change in use of District water reclamation system capacity that results in a decrease to the number of ESDs currently on file for the development being developed or altered. The higher number of ESDs on file and paid for shall remain with the development for purposes of future Fee charges resulting from redevelopment or alteration. d. Should District records not have on file the existing number of ESDs for the development being redeveloped or altered, the number of ESDs shall be determined by the Director of Public Works/District Engineer, in his or her sole judgment and discretion, based on best available information including but not limited to previous utility billings, building plans, and planning applications. 6 of 10

11 5. Amount of Fee. 7 of 10

12 6. Fee Calculations for NonResidential Development. a. For nonresidential, standard development projects, fees shall be calculated based on water meter size and wastewater strength category as described in the Report. b. For nonresidential, nonstandard development projects, the Director of Public Works/District Engineer shall calculate fees based on the ESD formula specified in the Report. If the ESD formula is not used, a different fee calculation may be established by separate agreement and District Board approval. c. Fees for mixed strength users shall be calculated based on medium strength waste characteristics. d. For changes in use in an existing development including changes in operation resulting in increased sewer flow and/or pollutant loading, an incremental wastewater capacity fee may be due. The incremental fee would be based on the difference between the capacity that would be charged for the new use and the capacity previously acquired for the current use. 7. Use of Fee Revenue. In accordance with California Government Code 66013(c), the revenues raised by payment of the Fee shall be placed in a separate, interest bearing account to permit accounting for such revenues and the interest which they generate. Such revenues and interest shall be used: a. To pay for acquisition, design, engineering, construction, reconstruction, property acquisition, consultant studies, and debt retirement of District owned water reclamation facilities. b. To reimburse the District for facilities constructed by the District with funds from other sources including funds from other public entities, unless such funds were obtained from grants or gifts intended by the grantor to be used for the Facilities. c. To pay for and/or reimburse costs of program development and ongoing administration of the Fee program, including, but not limited to, the cost of studies, legal costs, and other costs of updating the Fee. 8. Subsequent Analysis and Revision of the Fee. The Fee set herein is adopted and implemented by the Water District Board in reliance on the Record identified in this Resolution. The District may continue to conduct further study and analysis to determine whether the Fee should be revised. When additional information is available, the Water District Board may review the Fee to determine that the Fee amounts are reasonably related to the impact of development within the Town. In addition to the inflation adjustments pursuant to Section 9, below, the Water District Board may revise the Fee to 8 of 10

13 incorporate the findings and conclusions of further studies and any standards in the General Plan, as from time to time amended by the Town. 9. Fee Adjustments. The purpose of this Section 9 is to provide for annual adjustments of the Fee for inflation, beginning July 1, 2017 and each July thereafter using the Engineering News Record s 20Cities construction cost index (20cities CCI). 10. CEQA. The District Board finds that adoption of this Resolution is not subject to the California Environmental Quality Act ( CEQA ) pursuant to Section 15060(c)(2) of Title 14, Chapter 3 of the California Code of Regulations ( CEQA Guidelines ) because there is no possibility that the activity may have a direct or reasonably foreseeable indirect physical change in the environment. 11. Effective Date. This Resolution shall become effective 60 days from adoption. 12. Severability. Each component of the Fee and all portions of this Resolution are severable. Should any individual component of the Fee or any portion of this Resolution be adjudged to be invalid and unenforceable by a body of competent jurisdiction, then the remaining Fee components and/or Resolution portions shall be and continue in full force and effect, except as to those Fee components and/or Resolution portions that have been adjudged invalid. The Windsor Water District Board hereby declares that it would have adopted this Resolution and each section, subsection, clause, sentence, phrase, and other portion thereof, irrespective of the fact that one or more section, subsection clause, sentence, phrase, or other portion may be held invalid or unconstitutional. 9 of 10

14 PASSED, APPROVED AND ADOPTED this 15th day of February 2017, by the following vote: AYES: NOES: ABSTAIN: ABSENT: ATTEST: DEBORA FUDGE, CHAIR MARIA DE LA O, DISTRICT SECRETARY Attachment: Exhibit A: Report Water and Wastewater Capacity Fee Study, January 19, 2017, The Reed Group, Inc. 10 of 10

15 EXHIBIT A EXHIBIT A WATER AND WASTEWATER CAPACITY FEE STUDY The Reed Group, Inc. December 16, of 1

16 TOWN OF WINDSOR AND WINDSOR WATER DISTRICT Water and Wastewater Capacity Fee Study FINAL REPORT February 7, Freeport Boulevard #158 Sacramento, CA (916)

17 TOWN OF WINDSOR AND WINDSOR WATER DISTRICT WATER AND WASTEWATER CAPACITY FEE STUDY TABLE OF CONTENTS SUMMARY AND RECOMMENDATIONS 1 Proposed Water and Wastewater Capacity Fee Schedules 1 Comparison of Water and Wastewater Capacity Fees with Neighboring Communities 5 LEGAL REQUIREMENTS AND CAPACITY CHARGE METHODOLOGIES 5 Legal Requirements 6 Methodology for Calculating Capacity Charges 7 CURRENT WATER AND WASTEWATER CAPACITY FEES 10 CAPACITY FEE CALCULATIONS 11 Value of Existing Water and Wastewater Facilities 12 Past and Current LongTerm Debt Obligations 14 Capital Fund Reserves 16 Water and Wastewater Capacity Fee Calculation Summary 16 Water and Wastewater Capacity Fee Schedules 17 CAPACITY FEE ADMINISTRATION AND UPDATES 22 Annual Adjustments for Inflation 22 Capacity Fees for Changes in Use 22 APPENDIX A GOVERNMENT CODE SECTIONS 66013, 66016, 66022, AND APPENDIX B WATER SYSTEM FIXED ASSET RECORDS APPENDIX C WASTEWATER SYSTEM FIXED ASSET RECORDS APPENDIX D PUBLISHED DATA ON WASTEWATER USER STRENGTH CLASSIFICATIONS THE REED GROUP, INC.

18 TOWN OF WINDSOR AND WINDSOR WATER DISTRICT WATER AND WASTEWATER CAPACITY FEE STUDY WATER AND WASTEWATER CAPACITY FEE STUDY SUMMARY AND RECOMMENDATIONS In February 2016, the Town of Windsor retained The Reed Group, Inc. to assist the Town with updating water and wastewater capacity fees. Capacity fees are onetime fees charged for new service connections to the Town s water and wastewater systems, respectively. The fees are intended to reflect the estimated reasonable cost of capacity in each system and fee revenue is used to help cover the costs of capacity needed to serve new development. The last comprehensive analysis of water capacity fees occurred in 2010 and of wastewater capacity fees in While both fees have been adjusted each year for inflation, a review of the underlying assumptions and basis for the current fees has not occurred since those studies. At present, water capacity fees are based on the estimated costs of planned projects at the time the fees were developed (incremental cost methodology), and the wastewater capacity fees are based on the value of the existing wastewater system (system buyin methodology). This capacity fee study proposes the system buyin methodology for calculating both water and wastewater capacity fees. This methodology:! Provides water and wastewater capacity fees that are related to the estimated reasonable cost of capacity in the existing water and wastewater utility systems, respectively! Assures that new development will continue to pay fair and proportionate share of the estimated reasonable costs associated with capacity in the two systems! Enables a greater understanding and acceptance of the fees within the Town and with stakeholders! Improves consistency and uniformity of the capacity fee programs between the two utilities! Improves administrative ease and simplifies calculations for periodic updates. This report presents proposed water and wastewater capacity fees for FY 1617 and describes the fee methodology, underlying data and assumptions, benefits of the methodology, and fee calculations. Some changes in the fee schedules have been incorporated into the recommendations so that the two fee schedules are more consistent with one another. These changes should improve fee administration and customer understanding. It is recommended that the Town continue to adjust the capacity fees, in July of each year, based on inflation in construction costs, as detailed near the end of this report. Proposed Water and Wastewater Capacity Fee Schedules Exhibit 1 summarizes the proposed water capacity fee schedule. The proposed water capacity fees reflect the present value cost of capacity in the water system for various types of new connections. Water capacity fees for nonresidential (commercial, industrial, and institutional) and dedicated irrigation connections vary with the size of the water meter, which reflects the capacity requirements of the service connection Water capacity fees for residential development are based on the type and number of residential dwelling units. In a change from current practice, it is recommended that the water capacity fees for multifamily dwellings be modified from the current meter size basis to a perdwellingunit basis, consistent with the current structure for wastewater capacity fees. Also, based on THE REED GROUP, INC. PAGE 1

19 TOWN OF WINDSOR AND WINDSOR WATER DISTRICT WATER AND WASTEWATER CAPACITY FEE STUDY recent legislation 1 and policy direction from the Town Council, water capacity fees will not be required for accessory dwelling units (ADUs), as defined by Town s Zoning Ordinance. Mixeduse development, defined here to include a combination of residential and nonresidential uses, would be subject to both residential and nonresidential water capacity fees, each separately calculated. Note that formal definitions of Town land uses and housing types are included in the Town s Zoning Ordinance. If there are variances in the definitions included in this report and the Zoning Ordinance, the Zoning Ordinance shall take precedence. 1 Senate Bill 1069 (SB 1069) approved by the Governor on September 27, 2016 amended the Government Code and authorizes local agencies to adopt ordinances regarding accessory dwelling units with certain requirements. THE REED GROUP, INC. PAGE 2

20 TOWN OF WINDSOR AND WINDSOR WATER DISTRICT WATER AND WASTEWATER CAPACITY FEE STUDY The proposed water capacity fees are about onehalf of the current water capacity fees. The reduction is largely the result of using a different methodology for calculating the fees. The system buyin methodology has been deemed to be more appropriate for the Town at this time as shifts in customer demands are freeing up existing capacity and has resulted in postponing capacity improvements and other changes to the capital improvement program. Exhibit 2 summarizes the proposed wastewater capacity fee schedule. The proposed wastewater capacity fees reflect the present value cost of capacity in the wastewater system for various types of new connections. Separate capacity fees apply to single family and multifamily dwellings, based on differences in the capacity requirements of each type of development. A residential wastewater capacity fee for single family homes on lots less than 4,000 square feet and building size less than 1,200 square feet has been added to the fee schedule, to be consistent with the current water capacity fee schedule. As with water, ADUs will not be subject to wastewater capacity fees. Proposed nonresidential capacity fees are based on the size of the water meter, as well as the wastewater strength classification for the type of business. The water meter size approach is a change from the current fee structure, which requires a calculation of estimated wastewater generation for each new nonresidential development project. Exhibit 12, on page 19, summarizes the general types of businesses that fall into the low, medium, and high strength categories used for the nonresidential wastewater capacity fee structure. Note again that formal definitions of Town land uses and housing types are included in the Town s Zoning Ordinance. If there are variances in the definitions included in this report and the Zoning Ordinance, the Zoning Ordinance shall take precedence. Mixeduse development, defined to include a combination of residential and nonresidential uses, would be subject to both residential and nonresidential wastewater capacity fees, each separately calculated. The proposed wastewater capacity fee structure should improve administrative ease, enable quicker fee determinations, reduce uncertainty, and improve customer understanding. Separate fee calculations for nonstandard types of development, such as food processing, wineries, and breweries, should continue, as appropriate. The formula included in the footnotes of Exhibit 2 should be applied in these and other special circumstances when wastewater flow and loading characteristics justify a projectspecific calculation. The current wastewater capacity fee for small wineries should be rescinded until such time as a new study on the impacts of small wineries on the wastewater treatment system can be completed. The proposed wastewater capacity fees are about 18 percent lower than the current fee. The proposed fees bring greater equity across the range of potential development as well as a simpler means of determining the fees for development projects. THE REED GROUP, INC. PAGE 3

21 TOWN OF WINDSOR AND WINDSOR WATER DISTRICT WATER AND WASTEWATER CAPACITY FEE STUDY THE REED GROUP, INC. PAGE 4

22 TOWN OF WINDSOR AND WINDSOR WATER DISTRICT WATER AND WASTEWATER CAPACITY FEE STUDY Comparison of Water and Wastewater Capacity Fees with Neighboring Communities Exhibit 3 summarizes the current and proposed water and wastewater capacity fees for new singlefamily homes with the fees applicable in neighboring communities. The proposed combined water and wastewater capacity fees are about 32 percent lower than the current combined fees, and would bring the Town s combined water and wastewater capacity fees within the range found with neighboring communities. Currently, the Town s combined water and wastewater capacity fees are the highest relative to neighboring communities surveyed. The balance of this report includes (1) the legal requirements for capacity fees as well as the capacity fee methodology used herein, (2) underlying assumptions and information used in the calculations, (3) fee calculations and fee schedules, and (4) administrative and future update recommendations. LEGAL REQUIREMENTS AND CAPACITY CHARGE METHODOLOGIES There are numerous methods to calculate capacity charges 2. Each method has varying advantages and disadvantages and no method is universally recognized as the best. The methodology appropriate for any particular service or utility is dependent on a number of issues including the availability of a defined capital improvement program and the extent to which the utility s infrastructure is built out. Any methodology used for calculating capacity charges should be: Financially Stable Capacity charges should reflect the estimated reasonable cost of providing capacity to new development and should be effective in covering the costs of providing such capacity. 2 Capacity fee is the Town s term for fees paid by new development to provide capacity in the water and wastewater systems necessary to accommodate the needs of new development. The term capacity charge is more typical for this type of fee, and is the term used in Government Code This report uses capacity charge when referring generally to this type of charge and capacity fee when referring specifically to the Town s fees. THE REED GROUP, INC. PAGE 5

23 TOWN OF WINDSOR AND WINDSOR WATER DISTRICT WATER AND WASTEWATER CAPACITY FEE STUDY Equitable Capital improvement costs should be allocated on a proportional basis that is reasonably related to the needs that are created and the benefits that are received by new development. Administratively Feasible Capacity charges should be administratively simple and easily explained and accepted by developers and the public. Legally Justifiable Capacity charges must be developed in accordance with California statutes and court decisions. Legal Requirements The Town has broad authority to charge users for capital facilities. The limitations of that authority are encompassed by the requirement that charges on new development bear a reasonable relationship to the needs created by, and the benefits accruing to that development. California courts have long used that reasonableness standard or nexus test to evaluate the constitutionality of exactions, including water and wastewater capacity charges. During the 1988 session of the California Legislature sections of the Government Code were added to codify constitutional and decisional law related to fees imposed on new development. Assembly Bill 1600 (AB 1600) enacted Government Code Sections related to development fees. These code sections generally contain three requirements: 1) Local agencies must follow a process set forth in the statutes and make certain determinations regarding the purpose and use of the fee and to establish a nexus or connection between a development project and the public improvement being financed with the fee. 2) The fee revenue must be segregated from the general fund in order to avoid commingling of impact fees and the general fund. 3) If a local agency has unspent or uncommitted development impact fees for five years or more, then it must make annual findings describing the continuing need for that money or it must refund the fees. Since the passage of AB 1600 various code sections have been added and modified to further clarify and expand the requirements related to developer fees. In particular, Government Code Section contains requirements specific to water and wastewater capacity charges. Appendix A, at the end of this report, includes Section and other sections of the Government Code related to water and wastewater capacity charges. The key to the statutory requirements is that water and wastewater capacity charges shall not exceed the estimated reasonable cost of providing service. Capacity charges should also meet the reasonable relationship standard or nexus test mentioned earlier and should reflect consideration of the following criteria, which would likely be considered by a court in evaluating the validity of the fees: Need Capacity charges should only be imposed on development that will need capacity in facilities provided by the Town. Benefit Improvements to be funded (or costs to be reimbursed) by capacity charges should satisfy the service needs related to the development on which the charges are imposed. THE REED GROUP, INC. PAGE 6

24 TOWN OF WINDSOR AND WINDSOR WATER DISTRICT WATER AND WASTEWATER CAPACITY FEE STUDY Amount The amount of the capacity charges should reflect the reasonable cost of providing service capacity and the share of the costs attributable to the service needs of new development. Earmarking Revenue from capacity charges should be segregated from other funds and used solely to pay for the facilities for which the charge was imposed. Timely Expenditure Revenue from capacity charges should be expended within a reasonable time after it is collected. Applying these criteria to the Town s situation requires an understanding of how improvement needs are established, how capacity is provided to new development, how costs are estimated and allocated, and how capacity charge revenues are accounted for and spent. Capacity charges that reflect the needs of future new facilities and capacity should be based on the Town s planning documents, including General Plans, master plans, and capital improvement programs. Capacity charges that reflect the cost of capacity in existing facilities should be based on fixed asset records, historical cost data, and related information. The Reed Group, Inc. is not a law firm, and the information contained in this section should not be considered legal advice. Information presented here represents our understanding of the legal framework by which capacity charges are calculated. The Town should seek the advice of legal counsel regarding the specific statutory requirements for each type of capacity fee. Methodology for Calculating Capacity Charges There are numerous methodologies for calculating capacity charges. The number has proliferated with the growing popularity of this type of fee. Various methodologies have evolved to meet changing public policy, legal requirements, and the unique or special circumstances of each local agency. Several major publications regarding capacity charges for various infrastructure needs, including water and wastewater system improvements, are generally recognized in the industry. These publications include: Development Impact Fees, Arthur C. Nelson, Principles of Water Rates, Fees, and Charges, Manual M1, American Water Works Association, 5 th Edition, Comprehensive Guide to Water and Wastewater Finance and Pricing, Second Edition, George A. Raftelis, System Development Charges for Water, Wastewater, and Stormwater Facilities, Arthur C. Nelson, These publications describe a number of methodologies including their applicability to various situations and the relative advantages and disadvantages of each. Within all of the available methodologies there are two primary approaches the system buyin methodology and the incrementalcost methodology. Other methodologies are usually some variation or combination of these two methods. The two primary methods are generally described below to illustrate the different perspectives that can be used to determine appropriate fees. THE REED GROUP, INC. PAGE 7

25 TOWN OF WINDSOR AND WINDSOR WATER DISTRICT WATER AND WASTEWATER CAPACITY FEE STUDY System BuyIn Method The system buyin method is based on the average investment in capital facilities by current customers. Raftelis describes the system buyin methodology as follows: Under this approach, capital recovery charges are based upon the buyin concept that existing users, through service charges, tax contributions, and other upfront charges, have developed a valuable public capital facility. The charge to users is designed to recognize the current value of providing the capacity necessary to serve additional users. The charge is computed by establishing fixed asset value under a historical or reproduction cost basis and deducting relevant liabilities (longterm debt, loans, etc.) from this amount. The number of units of service is then divided into this difference (considered to be the utility s equity) to establish the capital recovery charge. More simply, the buyin fee is determined by taking the current value of assets (depreciated historical cost escalated to current dollars) divided by the current number of customers (expressed in equivalent residential units). By paying capacity charges calculated on this basis new development buys into the existing capital facilities on par with existing development. Responsibility for new capital improvements is then shared equally by all customers. A simplified version of the calculation equation is: Present Value of Existing Facilities Total Units of Existing Development The system buyin methodology has four distinct advantages: The buyin methodology is a common and generally wellaccepted methodology for calculating capacity charges. The method is popular with developers in part because it is generally understood and often encountered by the development community. The buyin methodology includes only the cost of existing facilities and excludes the costs of future or planned facilities; therefore, it does not require a formal capital improvement program. The buyin methodology does not necessarily depend on an assessment of existing capacity availability; it therefore does not require the more detailed capacity analyses required to justify fees based on other methodologies. Capacity charges based on the buyin method are a reimbursement for past capital costs. Therefore, the use of the fees is to reimburse the utility for prior infrastructure investments. Once reimbursed, the utility is able to spend fee revenue on any capital improvement projects, and/or related debt service, without restriction. As a result, detailed accounting of impact fee expenditures is greatly simplified 3. The system buyin method is best applied in areas that are largely built out and with infrastructure already in place. However, if significant expansion of utility systems is required and future costs may be significantly different from historical costs then the system buyin approach may not be the best approach. With growing environmental and water supply 3 By accepting fee payments from new development the utility is indicating a willingness and ability to provide service. Therefore, it is recommended that capacity charge revenues be utilized for capital improvements that enhance service delivery capabilities. THE REED GROUP, INC. PAGE 8

26 TOWN OF WINDSOR AND WINDSOR WATER DISTRICT WATER AND WASTEWATER CAPACITY FEE STUDY concerns, customer water demands have been declining in recent years, and may not rebound to predrought levels. For this reason, existing system capacities may be sufficient for a growing customer base, and previously planned system improvements might be delayed or eliminated from capital improvement plans. These shifts would also indicate that the system buyin method would be an appropriate approach for water and wastewater capacity charges. Incremental Cost Method The incremental cost methodology is a fairly common approach for capacity charges, particularly for communities experiencing considerable new growth. The approach is based on the cost of new or planned capital facilities. The cost of growthrelated facilities is allocated to the new development to be served by the facilities. Allowances for existing capacity that may also serve new connections are often not made or only included on a limited basis. Under this approach, new customers pay for the incremental investment necessary for system expansion. The incremental approach is most commonly applied when new facilities are required to provide capacity for new development. For example, when new customers connect to a utility system they use either reserve capacity available to existing customers (which then needs to be replaced), or they require new capacity, which must be added to the system. The goal of this method is to minimize or eliminate the need to raise user rates in order to provide for system expansion. Consequently, new customers pay fully for additional capacity in new facilities to avoid imposing a burden on existing customers. The incremental cost methodology is generally supported by engineering analyses in order to satisfy nexus requirements. First, the capacity requirements of new development must be defined using service level standards. Second, the amount of capacity provided by new facilities must be determined, and capacity enhancements required to address existing deficiencies should be considered. To the extent that existing capacity does not provide the specified level of service to existing development, new facilities must be identified to correct these deficiencies, and fees paid by new development cannot be used to correct existing deficiencies. As a result, it is fairly common for only a portion of new capital facility costs to be included in fee calculations. The incremental cost methodology is simplified when allnew infrastructure is required to serve new development areas. In this situation, service level standards are defined, new facilities identified, and costs are determined. The cost of facilities is then allocated across all new development to be served by the facilities, as demonstrated with the following equation: Present Value of Planned Facilities Total Units of Planned New Development Units of development must be defined as well as demand factors for different types of development. Capacity charges based on the incremental cost methodology are subject to statutory accounting requirements because fee revenue must be accounted for until specific capital improvements are constructed. Recommended Methodology for Windsor s Water and Wastewater Capacity Fees The Town s current water capacity fees are based on the incremental cost methodology, and current wastewater capacity fees are based on the system buyin methodology. THE REED GROUP, INC. PAGE 9

27 TOWN OF WINDSOR AND WINDSOR WATER DISTRICT WATER AND WASTEWATER CAPACITY FEE STUDY The Town does not have a current master plan for its wastewater utility, and the next update is not expected for one to two years. Following a review of the Town s wastewater capital improvement programs and previous master plan, as well as discussions with Town staff, it was agreed that wastewater capacity fees should continue to be based on the system buyin methodology. This methodology has several administrative benefits, and does not rely on detailed capacity analysis. In addition, the wastewater capital improvement program largely includes rehabilitation and upgrade projects, rather than expansion projects, and new development is expected to rely largely on existing system capacity. While the water capacity fees (last calculated in 2010) are based on the incremental cost methodology, continuing to do so appears somewhat problematic. Customer water demands have shifted, due to the drought and other factors, and certain capital improvement projects have been deferred due, in part, to reduced customer demands and changing development patterns. Following discussions with staff, it was determined that the system buyin methodology may be more appropriate for the Town at this time and offers certain administrative advantages, as well as consistency with the wastewater capacity fees. As a result, the water capacity fees presented in this report are based on this methodology. CURRENT WATER AND WASTEWATER CAPACITY FEES Current water capacity fees are summarized in Exhibit 4, and current wastewater capacity fees are summarized in Exhibit 5. Both water and wastewater capacity fees were last adjusted for inflation in July That last comprehensive analysis of water capacity fees occurred in 2010, and the last comprehensive analysis of the wastewater capacity fees occurred in At the outset of the study, two changes to the fee structures were discussed with staff. First, it would be helpful to have greater uniformity between the two fee structures, particularly as it pertains to residential capacity fees. Second, the requirements for determining the number of ESDs for each proposed nonresidential development project can be cumbersome, time consuming, uncertain, and confusing to customers. A simpler approach that would enable a quicker determination of nonresidential capacity fees is desired. To this end, it was agreed that a nonresidential wastewater capacity fee based on water meter size and strength category (low, medium, and high) would be appropriate and advantageous. Separate procedures for small wineries and special (nonstandard) situations would remain. THE REED GROUP, INC. PAGE 10