MONROE CITY COUNCIL. Agenda Bill No

Transcription

1 MONROE CITY COUNCIL Agenda Bill No TITLE: Discussion: Impact Fees DATE: DEPT: CONTACT: PRESENTER: ITEM: 08/25/2015 Public Works Brad Feilberg Brad Feilberg Discussion: 08/25/2015 Attachments: 1. Mitigation/Impact/System Development Charges Comparison 2. Water and Sewer System Development Charge Memo 3. System Development Charge Power Point DESCRIPTION/BACKGROUND As a result of the utility and transportation planning undertaken as part of the 2015 Comprehensive Plan Update, the mitigation/impact/system development charges need to be adjusted. The adjustment will allow the City to collect the appropriate amount of money from new development in order to cover the developments impact on City facilities. Please note that the park mitigation fee is reduced due to a reduction in growth related demand in acres and a reduction in the total capital cost for all projects in the new Parks, Recreation & Open Space Plan. In order to implement, or not implement, the recommendation, several policy decisions are required: 1. Water & Sewer System Development Charges: a. Average integrated method b. Expansion incremental (current) method 2. Parks Impact Fee 3. Transportation Impact Fee a. Scenario i. Base projects ii. Base projects & contingency iii. Base projects & contingency & completed projects iv. Base projects & completed projects b. Discount rate IMPACT BUDGET N/A TIME CONSTRAINTS In order to allow sufficient time to adjust the 2016 budget as necessary, and have new impact/mitigation/system development charges in place by January 1, 2016, a decision is needed by September 22, REQUESTED ACTION Discussion and direction regarding policy options. Page 1 of 18

2 ATTACHMENT 1 Estimated Mitigation/Impact/System Development Charges for a single family residence 8/20/2015 Water Sewer Storm Transportation Parks Schools Total Leavenworth $ 5, $ 3, $ 1, $ $ $ $ 9, Everett W/S sf Mukilteo School $ 2, $ 3, $ $ 2, $ $ 3, $ 12, Everett W/S sf Mukilteo School $ 2, $ 4, $ $ 2, $ $ 3, $ 13, Everett W/S* sf Everett School $ 2, $ 3, $ $ 2, $ $ 4, $ 13, Bothell $ 4, $ 2, $ $ 5, $ 1, $ $ 14, Everett W/S sf Everett School $ 2, $ 4, $ $ 2, $ $ 4, $ 14, Unincorp Sno Co Monroe UGA w/sewer $ 4, $ 6, $ $ 3, $ $ $ 14, Woodinville $ 5, $ 2, $ $ 3, $ 3, $ $ 14, Everett W/S 2000sf & Over Mukilteo School $ 3, $ 5, $ $ 2, $ $ 3, $ 15, Everett W/S 2000sf & Over Everett School $ 3, $ 5, $ $ 2, $ $ 4, $ 16, Monroe Proposed Base Transportation $ 4, $ 7, $ $ 2, $ 2, $ $ 16, Monroe Proposed Base + Completed $ 4, $ 7, $ $ 2, $ 2, $ $ 16, Inside city of Marysville Lakewood School $ 4, $ 4, $ $ 5, $ 1, $ $ 16, Outside city of Marysville Lakewood School $ 5, $ 4, $ $ 5, $ 1, $ $ 17, Inside city of Marysville Marysville School $ 4, $ 4, $ $ 5, $ 1, $ 1, $ 17, Monroe Proposed Base + Contingency $ 4, $ 7, $ $ 3, $ 2, $ $ 17, Monroe Proposed Base +Completed + Contingency $ 4, $ 7, $ $ 3, $ 2, $ $ 18, Lake Stevens $ 1, $ 6, $ $ 2, $ 2, $ 4, $ 18, Monroe Current $ 4, $ 6, $ $ 2, $ 4, $ $ 18, Outside city of Marysville Marysville School $ 5, $ 4, $ $ 5, $ 1, $ 1, $ 18, Inside city of Marysville Lake Stevens School $ 4, $ 4, $ $ 5, $ 1, $ 4, $ 20, Outside city of Marysville Lake Stevens School $ 5, $ 4, $ $ 5, $ 1, $ 4, $ 21, Redmond W/S sf $ 2, $ 2, $ **DT $ 3, $ 9, $ 22, Redmond W/S sf Overlake $ 2, $ 2, $ $ 4, $ 3, $ 9, $ 22, Snohomish $ 6, $ 9, $ $ 1, $ 4, $ $ 22, Unincorp Sno Co Monroe UGA w/ septic $ 4, $ 15, $ $ 3, $ $ $ 22, Redmond W/S sf Rest of City $ 2, $ 2, $ $ 5, $ 3, $ 9, $ 23, Redmond W/S sf $ 3, $ 2, $ $ 4, $ 3, $ 9, $ 23, Redmond W/S sf Overlake $ 3, $ 2, $ $ 4, $ 3, $ 9, $ 23, Redmond W/S sf Rest of City $ 3, $ 2, $ $ 5, $ 3, $ 9, $ 24, Redmond W/S 3301 & over $ 5, $ 2, $ $ 4, $ 3, $ 9, $ 24, Redmond W/S 3301 & over Overlake $ 5, $ 2, $ $ 4, $ 3, $ 9, $ 25, Redmond W/S 3301 & over Rest of City $ 5, $ 2, $ $ 5, $ 3, $ 9, $ 25, Duvall $ 7, $ 10, $ 1, $ 7, $ 4, $ 4, $ 36, * Water/Sewer **DT Downtown Page 2 of 18

3 ATTACHMENT 2 Project Memorandum To: Brad Feilberg, Public Works Director Date: July 14, 2015 Dianne Nelson, Finance Director City of Monroe, Washington From: Gordon Wilson, Project Manager RE: Tage Aaker, Project Consultant Water and Sewer Systems Development Charge (SDC) Update A. INTRODUCTION The City of Monroe contracted with BHC Consultants to update the City s water, sewer, and stormwater comprehensive plans in In conjunction with this update, BHC Consultants contracted with to produce the financial chapter of the comprehensive plan, review the rate design, prepare recommended rates, and update the City s system development charges (SDCs). The financial chapter (Chapter 12) of the comprehensive plan was previously submitted to the City as part of the larger comprehensive plan document, and the rate design discussion and recommended rates are addressed in a memorandum delivered separately to the City. The purpose of this memorandum is to review and update the City s SDCs. SDCs go by a variety of names. The Monroe Municipal Code currently uses the terms water capital improvement charge and waste water capacity expansion charge. Because systems development charge is a generic term used commonly by city utilities across the state, the City staff plans to recommend that the code be amended to refer to systems development charges for both utilities. At the staff s request, we use the term systems development charge or SDC throughout this memo. The City currently has an SDC for water and sewer systems. The City does not have a stormwater SDC and does not plan to create one, so this memo is focused on the water and sewer SDCs. B. BACKGROUND SDCs are imposed on newly connecting customers, but they should not be confused with water meter installation charges or other fees that reimburse the City for the cost of making the physical connection for a new customer. Instead, an SDC is a method of recovering from new customers a proportionate share of the utility s investment in capital capacity both the historical cost of existing capital assets and the planned cost of future capital improvements. SDCs serve two main purposes: to provide equity between existing and new customers, and to provide a source of utility capital funding. In addition, SDCs can be seen as a way to ensure that growth pays for growth. The charge is imposed on both new development and redevelopment that increases demand for system capacity. Municipal utilities operate as selfsufficient enterprises, with utility system costs borne by existing ratepayers. This means that existing customers have invested in the current system capacity, including any excess system capacity available to serve growth. In part, the SDC functions as a buyin charge. To avoid dilution of the investment of existing customers, new customers are required to buy in to the system commensurate with the cost of the assets needed to serve them. In Washington, water and sewer SDCs for cities are authorized in RCW as part of the statutory revenue authority of cities. The statute simply states that a reasonable connection charge may be imposed so that property owners shall bear their equitable share of the cost of [the] system, leaving substantial discretion to the City to determine how this equitable share is calculated. Page 3 of 18

4 City of Monroe Water and Sewer SDC Update July 2015 C. METHODOLOGY C1. GENERAL METHODOLOGY The basic approach to an SDC calculation can be shown in general terms as follows: General SDC Methodology SDC = Allocable Capital Cost Applicable Customer Base The applicable customer base is measured in Equivalent Residential Units (ERUs). The capital costs used in the SDC calculation can be separated into two major categories: Existing system: These costs represent the net investment in assets that currently provide service to customers (and that presumably have some amount of capacity available to serve growth). Future capital projects: These costs refer to capital improvement projects that the utility plans to undertake within a period of time specified in the system planning documents. These projects typically fall into one of three categories, depending on the reason for the capital expenditure: Repair & Replacement (R&R) Projects: These projects are to replace existing infrastructure due to wear and tear over time. These projects do not increase system capacity and are not upgrades to functionality or regulatory compliance. These costs are most often excluded from the SDC calculation as they are assumed to be repairing or replacing fixed assets that are already accounted for within the existing system cost basis. Upgrade Projects: These projects broadly benefit both existing and future customers without increasing system capacity. Examples might include construction of an operations facility, improving system security, or projects driven by new regulations. Expansion Projects. These projects primarily increase system capacity to serve additional customers. They may include main extensions, investments in conservation programs, treatment plant expansions, or pipe upsizing projects. A single capital project may have components in more than one of these groups, in which case the City or its engineers provide an estimate of the percentage of project cost applicable to each group. For example, a pipe being replaced by a larger pipe may be considered to be 50% R&R, 50% expansion. There are several valid analytical approaches that can be taken in the calculation of an SDC. For the City of Monroe, we considered two alternative approaches: Expansion Incremental (Approach A) which is the existing methodology. Average Integrated (Approach B) which is the recommended methodology. The analytical approach is a policy choice that should be determined by City staff and City Council. Both methodologies are legally defensible, though we recommend that the City use the same methodology for both SDCs. For example, we would not suggest using Approach A for the water utility and Approach B for the sewer utility, or vice versa. Both of these approaches are explained in the next section. Page 4 of 18 Page 2 of 10

5 City of Monroe Water and Sewer SDC Update July 2015 C2. ALTERNATE METHODOLOGIES Expansion Incremental Methodology (Approach A) Existing The methodology used to calculate the City s existing SDC is as follows: This approach allocates existing costs and future upgrade costs proportionately between existing and future customers, since both types of costs benefit both customers. However, this method assigns future expansion costs solely to the incremental growth in ERUs. Because expansion projects are spread over a smaller denominator, this approach tends to result in a higher charge at any given time. Compared with Approach B, the Expansion Incremental methodology is inherently more volatile. Over time, as the capital plan is executed and a given group of expansion projects built, future capital costs become existing system costs, which are spread over the entire customer base. For example, imagine that a treatment plant expansion is in the CIP and all of its cost is recovered from growth in ERUs. The result will be a very high SDC, because a high cost is being divided by a small number of ERUs. Then, three years later, after the treatment plant expansion is built, this large cost would move into the existing cost category, which means it would be divided by a much larger denominator not only the growth in ERUS but also all existing customers. As a result, the SDC would drop as soon as a large expansionrelated project is built. But there is no clear reason that people connecting two years from now should pay a higher SDC than people connecting five years from now. Approach A is also more sensitive to changes in growth assumptions between studies. In general, Approach A emphasizes growth paying for growth, but because of its volatility, it is less equitable between today s customers, new customers next year, and new customers ten years from now. Average Integrated Methodology (Approach B) Recommended The average integrated approach is as follows: Approach B: Average Integrated SDC = Existing System Cost + Existing Customer Base Future Project Costs: Upgrade + + Future Growth Served Future Project Costs: Expansion Under this method, future costs that improve or expand the system are allocated in proportion to the share of the total future customer base represented by future growth. As a result, all relevant capital costs (existing assets, upgrades and expansion projects) are divided by all projected ERUs (existing plus projected growth). The main policy emphasis here is on intergenerational equity there is no cost advantage for either existing or new customers. This calculation is like a simple buyin charge (which consists of existing costs divided by existing customers), except that it is projected into a future year, after the planned capital projects are completed. The resulting SDC is stable over time and not highly sensitive to population forecasting assumptions. We recommend it for Monroe. Page 5 of 18 Page 3 of 10

6 City of Monroe Water and Sewer SDC Update July 2015 C3. DEFINING EXISTING SYSTEM COSTS The original cost of system assets is used as the basis for the cost of the existing system. The use of original cost is based primarily on a Washington court decision that determined that the use of replacement cost, rather than actual original construction cost, was not consistent with the statutory definition of system cost. As provided under RCW , up to ten years of interest can then be added to the original construction cost. This is incorporated into the existing cost basis by applying interest rates applicable at time of construction of each asset for up to ten years based on age. Assets that were donated to the utility by developers or funded by grants are excluded from the calculated charge and no interest is applied. Another adjustment to the existing system cost basis is to deduct the net liability of outstanding utility debt. The amount of outstanding debt represents assets that existing customers have acquired but not yet paid for. Instead, those assets will be paid for in future years as debt service payments are made. Since newly connecting customers will be paying monthly rates in the future, including a share of debt service payments, they should not also be charged for outstanding debt in their SDC. However, there is an offset to the deduction for outstanding debt, and that is the cash that has been accumulated by the system. Cash represents something that today s ratepayers have already paid for, even though it has not yet been used to acquire assets or retire outstanding debt. So the net outstanding debt deduction consists of outstanding debt minus cash balances, but not less than zero. If the cash balances are equal to or greater than outstanding debt, then the net outstanding debt deduction is zero. Fixed Asset Database Because the City of Monroe moved to cash basis accounting several years ago, fixed assets are no longer tracked in a unified system. The fixed assets for this SDC update came from several sources, including: The previous capital charge study, which used fixed asset data as current as 2007 The City s current aboveground asset database The City s current belowground asset database We worked with City staff to help identify duplicate assets, assets no longer in use, or assets that may be missing altogether. For the sake of future SDC updates, we encourage the City to maintain an ongoing fixed asset inventory in future years. This inventory need not include depreciation, but it should at least contain the original cost and the year the asset was placed in service. With that data and assumptions about useful lives, we can reconstruct a depreciation schedule. Newly constructed or acquired capital assets should be added to the inventory each year, and when an asset is replaced or otherwise taken out of service, it should be deleted from the inventory. The combined inventory we developed for this SDC update can serve as a starting point in maintaining the ongoing asset inventory. C4. DEFINING FUTURE SYSTEM COSTS The utility capital improvement program (CIP) includes projects that address capital needs, such as system expansion, system extensions, upgrades and improvements, and replacement of aging infrastructure. In many cases, a CIP project can serve more than one of these purposes. BHC Consultants assigned each project in the CIP to one of the three basic categories: repair and replacement (R&R), upgrade, and expansion. Those projects or portions of projects attributed to R&R are excluded from the SDC calculation, so that new customers are not charged for both an existing asset and its replacement. Page 6 of 18 Page 4 of 10

7 City of Monroe Water and Sewer SDC Update July 2015 C5. DEFINING THE CUSTOMER BASE The customer base for an SDC is defined by the number of equivalent residential units (ERUs). ERUs for the purposes of a development charge can be different from ERUs for the purposes of monthly rates. The costs recovered through an SDC are related to system capacity, so the metrics used to scale up the charge should be related to the capacity requirement of a given development. The total customer base for an SDC consists of the number of existing connected ERUs plus the projected number of future ERUs to be connected through the end of the study period. a) Existing Customer Base The City charges a flat SDC per equivalent residential unit (ERU) that a new customer is expected to add to each system. According to the City s municipal code, the City has two options to determine the number of ERUs for a given new customer and can use whichever methodology yields the greatest number (MMC and ). The first approach assigns a fixed number of ERUs per meter size. This is based on industry standard meter capacity equivalents (MCEs), which attempts to estimate maximum safe flow capacity in gallons per minute, relative to the smallest base meter size. This standard schedule of MCEs, which is published by the American Water Works Association, can be seen below in Exhibit C1. Exhibit C1: Standard Meter Capacity Equivalents Meter Size MCEs 5/8 x 3/4 Inch 1 1 Inch /2 Inches 5 2 Inches 8 3 Inches 16 4 Inches 25 6 Inches 50 8 Inches 80 The second approach available to the City takes the expected water usage of a new customer and divides the total by 1,000 cubic feet per month to calculate a number of equivalent residential units. During discussions with City staff, we were told that the first methodology is used most often and is more administratively feasible. According to City staff, the usagebased ERU is most often used for customers that are redeveloping an existing parcel. For both Water and Sewer, the total number of ERUs for this SDC update is based on meter capacity equivalents, drawing from the number of connected meters and their corresponding meter size. Using MCEs to define an ERU yields a different total number of ERUs than using water usage 1, but it is important that the calculation of the SDC be based on the same method that is most often used in administering the SDC. If a customer walking up to the counter for a development permit is charged an SDC based on the size of the meter, then the calculation of that SDC should be based on the total number of meter capacity equivalents. In the remainder of this memo, we will use meter capacity equivalents to characterize the total ERUs. 1 MCEs are typically used for water SDCs, but sewer SDCs are often based on estimates of flow capacity requirements for a given development. However, estimating the potential demand for wastewater flow from a new development is difficult, and some sewer utilities including Monroe s use meter size as an approximation of potential sewer demand as well as water demand, just because it is easy to calculate and does not change over time. This is a defensible methodology and fits the practical reality of administering the charge on new development, for which there is no history of winter average water consumption. Page 7 of 18 Page 5 of 10

8 City of Monroe Water and Sewer SDC Update July 2015 b) Future Customer Base For the connection charge calculation, the existing customer base is escalated to match the growth in demand forecasted in the comprehensive plan. In the water utility, current Average Daily Demand (ADD) is compared to projected ADD at the end of the study period in Exhibit C2 summarizes the findings, resulting in an annual growth rate of 1.14%. These figures come from Tables W 57 and W 513 in the draft comprehensive plan. Exhibit C2: Growth Rate Implied by Water Plan Growth in Average Daily Demand (ADD) Year ADD (gpd) ,758, ,255,299 Total Change 28.2% Number of Years 22 CAGR (annual growth) 1.14% Note: ADD excludes water loss & hydrant usage This growth rate is applied to the existing number of MCEs each year through A small adjustment was made in the 2014 numbers to incorporate the additional accounts taken on by the absorption of the Sky Meadow Water Association. The number of MCEs for the water utility as of the end of 2013 is 7,879, and it is projected to grow to 10,666 by 2035, for a total of 2,787 ERUs of new development over the study period. In the sewer utility, average annual daily flow is compared to projected average annual daily flow at the end of the study period in Exhibit C3 summarizes these findings, resulting in an annual growth rate of 1.79%. These figures are based on Tables SS 54 and SS 58 in the draft comprehensive plan. Exhibit C3: Growth Rate Implied by Sewer Plan Growth in Average Daily Flow Year Average Daily Flow (MG/D) Total Change 47.87% Number of Years 22 CAGR (annual growth) 1.79% The number of sewer MCEs as of the end of 2013 was 5,543. (The City s sewer system has just over 4,000 accounts, whereas the water system has about 6,000 accounts, so the number of sewer MCEs is also less than the total water MCEs.) By the end of the study period in 2035, the sewer system is projected to have 8,196 MCEs, which implies a total of 2,653 ERUs of new development over the study period. Page 8 of 18 Page 6 of 10

9 City of Monroe Water and Sewer SDC Update July 2015 D. WATER SYSTEM DEVELOPMENT CHARGE Exhibit D1 shows the detailed calculation of the water SDC, including the existing cost basis, future cost basis, projected growth in customer base, and resulting SDC under both analytical approaches we described above. At the bottom, the SDC resulting from each approach is compared with the current SDC. Exhibit D1: Water SDC Calculation Water SDC Calculation Water System Development Charge Components Existing Recommended Notes Input Data Expansion Incremental (Approach A) Average Integrated (Approach B) Existing Cost Basis Existing System Assets $ 26,447,327 $ 26,447,327 Original cost of plantinservice as of end of year 2013 Plus: Construction Work in Progress 215,662 $ 215,662 End of year 2013 Construction in Progress per Plus: Interest on NonContributed Plant 10,918,109 $ 10,918,109 Interest on assets up to a maximum 10year period Less: Contributed Capital (4,568,669) $ (4,568,669) CIAC, Grants, and other contributed capital Less: Outstanding Debt Net of Current Cash Balances Existing Cash Balances $ 6,947,896 Ending cash balances for 2014 Less: Debt Principal Outstanding $ (6,510,575) Total principal outstanding for the existing debt, end of Net Outstanding Debt Balance $ Debt principal outstanding, net of cash reserves, max of $0. Total Existing Cost Basis $ 33,012,429 $ 33,012,429 Future Cost Basis (20Year CIP) Repair & Replacement Projects $ 27,048,388 $ 27,048,388 CIP for Upgrade Projects 8,282,524 $ 8,282,524 CIP for Expansion Projects 2,551,004 $ 2,551,004 CIP for Total Future Cost Basis $ 37,881,917 $ 37,881,917 Customer Base (Meter Capacity Equivalents) Existing Equivalents 7,879 7,879 Estimated MCEs at Beginning of 2014 Future Equivalent 2,787 2,787 Growth based on Annualized ADD Growth from Total Customer Base 10,666 10,666 Estimated MCEs as of 2035 SDC Calculations Costs Allocated to Existing & Future Customers Existing Assets + Interest $ 33,012,429 $ 33,012,429 Repair & Replacement Projects $ $ Upgrade Projects $ 8,282,524 $ 8,282,524 Expansion Projects $ $ 2,551,004 Total Existing Cost Basis $ 41,294,953 $ 43,845,957 Total Customer Base 10,666 10,666 Existing Portion $ 3,872 $ 4,111 Costs Allocated to Future Customers Only Expansion Projects $ 2,551,004 $ Future Cost Basis $ 2,551,004 $ Future Customers (Growth) 2,787 2,787 Future Portion $ 915 $ Total System Development Charge Per MCE $ 4,787 $ 4,111 Existing System Development Charge per MCE $ 4,335 Percent Increase/ Decrease from Existing 10% 5% Dollar Increase/ Decrease from Existing $452 ($224) In the existing approach, the $2.55 million cost of expansionrelated projects is allocated only to the 2,787 MCEs projected to come from new development between 2013 and The $2.55 million cost of expansion projects divided by 2,787 new MCEs equals $915 per new MCE. In addition, the existing cost basis of $41.3 million is spread across 10,666 MCEs of existing plus new customers, which results in $3,872 per MCE for the existing costs. The sum of $3,872 and $915 is $4,787, which is the total calculated SDC under the existing method. This is a 10% increase above the current SDC of $4,335. In the recommended method, the existing costs plus expansion and upgrade CIP projects totals $43.8 million, which is divided by the 10,666 MCEs projected in 2035, resulting in an average integrated SDC of $4,111 per MCE. This is a 5% decrease from the current SDC of $4,335. Page 9 of 18 Page 7 of 10

10 City of Monroe Water and Sewer SDC Update July 2015 E. SEWER SYSTEM DEVELOPMENT CHARGE Exhibit E1 shows the detailed calculation of the sewer SDC under both methods. It shows the existing costs, project capital improvement costs for expansion and upgrade projects, and the current and projected future MCEs. Again, the resulting SDC from each method is compared with the current sewer SDC of $6,777. Exhibit E1: Sewer SDC Calculation Sewer SDC Calculation Sewer System Development Charge Components Existing Recommended Notes Input Data Expansion Incremental (Approach A) Average Integrated (Approach B) Existing Cost Basis Existing System Assets $ 42,172,380 $ 42,172,380 Original cost of plantinservice as of end of year 2013 Plus: Construction Work in Progress $ 181,564 $ 181,564 End of year 2013 Construction in Progress per Plus: Interest on NonContributed Plant $ 17,719,781 $ 17,719,781 Interest on assets up to a maximum 10year period. Less: Contributed Capital $ (4,119,785) $ (4,119,785) CIAC, Grants, and other contributed capital. Less: Outstanding Debt Net of Current Cash Balances Existing Cash Balances $ 7,289,186 Ending cash balances in 2013 Less: Debt Principal Outstanding $ (17,949,800) Total principal outstanding for the existing debt end of 2013 Net Outstanding Debt Balance $ (10,660,613) $ (10,660,613) Debt principal outstanding, net of cash reserves Total Existing Cost Basis $ 45,293,327 $ 45,293,327 Future Cost Basis (20Year CIP) Repair & Replacement Projects $ 20,684,489 $ 20,684,489 CIP for Upgrade Projects $ 8,202,528 $ 8,202,528 CIP for Expansion Projects $ 7,614,668 $ 7,614,668 CIP for Total Future Cost Basis (20year CIP) $ 36,501,685 $ 36,501,685 Customer Base Existing (Estimated Beginning MCEs in 2014) 5,543 5,543 Estimated MCEs at Beginning of 2014 Future 2,653 2,653 Growth based on ADF Growth from Total Customer Base 8,196 8,196 Estimated MCEs as of 2035 SDC Calculations Costs Allocated to Existing & Future Customers Existing Assets + Interest $ 45,293,327 $ 45,293,327 Repair & Replacement Projects $ $ Upgrade Projects $ 8,202,528 $ 8,202,528 Expansion Projects $ $ 7,614,668 Total Existing Cost Basis $ 53,495,856 $ 61,110,523 Total Customer Base 8,196 8,196 Existing Portion $ 6,527 $ 7,456 Costs Allocated to Future Customers Only Existing Assets + Interest $ $ Repair & Replacement Projects $ $ Upgrade Projects $ $ Expansion Projects $ 7,614,668 $ Future Cost Basis $ 7,614,668 $ Future Customers (Growth) 2,653 2,653 Future Portion $ 2,870 $ Total System Development Charge Per MCE $ 9,397 $ 7,456 Existing System Development Charge per MCE $ 6,777 Percent Increase/ Decrease from Existing 39% 10% Dollar Increase/ Decrease from Existing $ 2,620 $ 679 The flow of the calculation is the same for the sewer SDC as for the Water SDC. In the sewer CIP, the expansionrelated sewer projects are projected to cost about $7.6 million. In the existing method, that amount is allocated only to the 2,653 MCEs projected as the incremental growth in the customer base. When added to the existing cost part of the SDC, the result is a total SDC of $9,397 per MCE, a 39% increase over the current sewer SDC. With the recommended method, the entire $61.1 million of existing and future costs are divided by the entire customer base of existing and future MCEs. The result is an SDC of $7,456 per MCE, an increase of 10% over the current sewer SDC of $6,777. Page 10 of 18 Page 8 of 10

11 City of Monroe Water and Sewer SDC Update July 2015 F. COMBINED IMPACT Exhibit F1 shows the combined impact of the updated SDCs for both water and sewer, using both calculation methods. Staying with Approach A would result in a total charge of $14,184 per MCE, a 28% increase over the current water/sewer SDC of $11,112. Approach B, the average integrated method, results in a combined water/sewer SDC of $11,567 per MCE, a 4% increase over the current levels. In addition to the theoretical advantages of more stability and a stronger emphasis on intergenerational equity, one reason we recommend the average integrated method for Monroe is that it leads to an overall increase that is more moderate than the increase with the existing approach. Exhibit F1: Combined Charge Comparison Monroe Capital Existing Approach A % Incr. Connection Charge Charge Approach B % Incr. Water $4,335 $4,787 10% $4,111 5% Sewer $6,777 $9,397 39% $7,456 10% Combined $11,112 $14,184 28% $11,567 4% G. JURISDICTION COMPARISON Exhibits G1 and G2 show the results of a comparative survey of other jurisdictions for both water and sewer SDCs. Monroe s current water SDC is in the middle of the comparison group. With either method, the water SDC would stay in the middle, though staying with the existing method would push it toward the upper end of the middle group. Exhibit G1: Water SDC Comparison Survey Jurisdiction Local Charge Regional Charge (CWA) 1 Everett $ 2,851 n/a $ 2,851 2 Snohomish $ 3,001 n/a $ 3,001 3 Woodinville $ 3,408 n/a $ 3,408 4 Lake Stevens $ 3,640 n/a $ 3,640 5 Leavenworth $ 3,899 n/a $ 3,899 6 Monroe (Approach B) $ 4,111 n/a $ 4,111 7 Monroe (Existing) $ 4,335 n/a $ 4,335 8 Bothell $ 4,405 n/a $ 4,405 9 Marysville $ 4,750 n/a $ 4, Monroe (Approach A) $ 4,787 n/a $ 4, Duvall $ 7,189 n/a $ 7, Redmond $ 2,440 $ 6,185 $ 8, Kirkland $ 3,406 $ 6,005 $ 9,411 Monroe s current sewer SDC is also in the middle of the comparison group, and Approach B would not change that very much. Approach A would push the Monroe sewer SDC much closer to Duvall, which is the highest of the jurisdictions not served by King County Wastewater Treatment Division. Exhibit G2: Sewer SDC Comparison Survey Jurisdiction Local Charge Regional Charge (KC Swr) 1 Leavenworth $ 2,620 n/a $ 2,620 2 Snohomish $ 2,975 n/a $ 2,975 3 Marysville $ 3,000 n/a $ 3,000 4 Everett $ 4,278 n/a $ 4,278 5 Monroe (Existing) $ 6,777 n/a $ 6,777 6 Lake Stevens $ 6,850 n/a $ 6,850 7 Monroe (Approach B) $ 7,456 n/a $ 7,456 8 Monroe (Approach A) $ 9,397 n/a $ 9,397 9 Duvall $ 10,233 n/a $ 10, Woodinville $ 1,513 $ 10,260 $ 11, Bothell $ 2,116 $ 10,260 $ 12, Redmond $ 2,500 $ 10,260 $ 12, Kirkland $ 3,106 $ 10,260 $ 13,366 Charge & Graph Charge & Graph Page 11 of 18 Page 9 of 10

12 City of Monroe Water and Sewer SDC Update July 2015 Exhibit G3 shows the comparison between Monroe s combined water and sewer SDCs and those of other jurisdictions. Monroe s current SDCs are squarely in the middle of the group, as would be the updated SDCs under the recommended Approach B. If the City stays with Approach A, the combined SDC would not change relative positions, but it would be edging toward the higher group, which consists of Duvall plus the four utilities in this survey that are served by King County Wastewater Treatment Division Woodinville, Bothell, Redmond, and Kirkland. Exhibit G3: Combined SDC Comparison Survey Jurisdiction Water Sewer Total Charge & Charge Charge Graph 1 Snohomish $ 3,001 $ 2,975 $ 5,976 2 Leavenworth $ 3,899 $ 2,620 $ 6,519 3 Everett $ 2,851 $ 4,278 $ 7,129 4 Marysville $ 4,750 $ 3,000 $ 7,750 5 Lake Stevens $ 3,640 $ 6,850 $ 10,490 6 Monroe (Existing) $ 4,335 $ 6,777 $ 11,112 7 Monroe (Approach B) $ 4,111 $ 7,456 $ 11,567 8 Monroe (Approach A) $ 4,787 $ 9,397 $ 14,184 9 Woodinville $ 3,408 $ 11,773 $ 15, Bothell $ 4,405 $ 12,376 $ 16, Duvall $ 7,189 $ 10,233 $ 17, Redmond $ 8,625 $ 12,760 $ 21, Kirkland $ 9,411 $ 13,366 $ 22,777 Note: Includes any regional connection charges H. CONCLUSION We recommend that the City adopt the calculated SDCs using Approach B, the average integrated method. This will provide a more stable charge over time by making the calculation less sensitive to population growth assumptions and the composition of the CIP at any given point in time. It also has a stronger emphasis on equity between today s customers, new customers connected next year, and new customers connected ten years from now. In addition, with this particular update, the average integrated method would lead to a moderate increase of 4% overall, whereas the current expansion incremental approach would lead to a sharp increase of 28% over the current SDC. If the City stays with the existing approach, the updated SDCs would be $4,787 for water and $9,397 for sewer, for a total of $14,184. If the City adopts the recommended approach, the updated SDCs would be $4,111 for water and $7,456 for sewer, for a total of $11,567. Page 12 of 18 Page 10 of 10

13 ATTACHMENT 3 City of Monroe Systems Development Charges July 28, 2015 Page 13 of 18

14 Systems Development Charges (SDCs) A onetime charge payable at time of new development or upsizing of existing development, to recover a proportionate share of the existing and future cost of system capacity In the SDC calculation, the numerator is the cost basis; the denominator is the number of ERUs over which those costs are being spread In Monroe, to be consistent with how the SDC is administered, we used meterequivalents as ERUs, with a 5/8 x 3/4 meter representing one ERU and larger meters charged according to a table of meter capacity equivalents published by the American Water Works Association General SDC Methodology SD C = Allocable Capital Cost Applicable Customer Base Page 14 of 18 Page 2

15 Systems Development Charges (SDCs) In the SDC calculation, there is more than one reasonable method, giving the City a policy choice about its priorities The current method ( expansion incremental method) loads the expansionrelated future capital project costs only onto new customers; this tends to create a higher SDC at any given time This method puts a lot of emphasis on ensuring that growth pays for growth ; it gives existing customers a preference over new customers, since newer facilities are likely to be more costly than older facilities This method is unstable, because the result is sensitive to assumptions about future customer growth and the size of the expansionrelated capital program As a big expansion project moves from future to existing, the denominator suddenly increases, lowering the charge Page 15 of 18 Page 3

16 Systems Development Charges (SDCs) The alternate method we suggest (the average integrated method) divides all costs (existing and future) by all ERUs (existing and future). This approach places more policy emphasis on equity and relatively less on making sure that growth pays for growth. Equity between existing and future customers is emphasized, since there is no cost advantage to existing customers everything is averaged together Because this method is more stable in its results, it also is more equitable between new customers connecting next year and new customers connecting ten years from now Approach B: Average Integrated SDC = Existing System Cost + Existing Customer Base Future Project Costs: Upgrade + + Future Growth Served Future Project Costs: Expansion Page 16 of 18 Page 4

17 Systems Development Charges (SDCs) The results of the two methods are shown below. The existing charge is $4,335 per ERU for water and $6,777 per ERU for sewer. Approach A is the existing expansion incremental method. Under this method, the updated SDC would be $4,787 for water and $9,397 for sewer, and overall increase of 28%. Approach B is the recommended average integrated method. Under this approach, the updated SDC would be $4,111 for water and $7,456 for sewer, for an overall increase of 4%. While we tend to favor the average integrated method in general, one reason for the City to consider changing to this methodology is that it results in a more moderate increase at this time. Monroe Capital Existing Approach A % Incr. Connection Charge Charge Approach B % Incr. Water $4,335 $4,787 10% $4,111 5% Sewer $6,777 $9,397 39% $7,456 10% Combined $11,112 $14,184 28% $11,567 4% Page 17 of 18 Page 5

18 Systems Development Charges (SDCs) The chart below shows how Monroe s existing and updated SDCs fall in comparison to those of other cities If the City stays with Approach A (the current method) for its SDCs, Monroe s relative ranking would not change, but it would be edging toward the higher group, which consists of Duvall plus the four utilities in this survey that are served by King County Wastewater Jurisdiction Water Sewer Total Charge & Charge Charge Graph 1 Snohomish $ 3,001 $ 2,975 $ 5,976 2 Leavenworth $ 3,899 $ 2,620 $ 6,519 3 Everett $ 2,851 $ 4,278 $ 7,129 4 Marysville $ 4,750 $ 3,000 $ 7,750 5 Lake Stevens $ 3,640 $ 6,850 $ 10,490 6 Monroe (Existing) $ 4,335 $ 6,777 $ 11,112 7 Monroe (Approach B) $ 4,111 $ 7,456 $ 11,567 8 Monroe (Approach A) $ 4,787 $ 9,397 $ 14,184 9 Woodinville $ 3,408 $ 11,773 $ 15, Bothell $ 4,405 $ 12,376 $ 16, Duvall $ 7,189 $ 10,233 $ 17, Redmond $ 8,625 $ 12,760 $ 21, Kirkland $ 9,411 $ 13,366 $ 22,777 Note: Includes any regional connection charges Page 18 of 18 Page 6