To: From: Craig Call, Esq. Jon Call, Esq. Anderson, Call & Wilkinson Attorneys for the Plaintiffs Christine Richman, MBA GSBS Richman Consulting Date: November 7, 2014 Re: Ivory Development, LLC, et. al. vs. Timpanogos Special Service District The following represents an addendum to my report of June 26, 2014 in the above referenced matter. It is an estimate of the dollar impact on the Timpanogos Special Service District (TSSD) wastewater collection and treatment impact fee is the deficiencies identified in the June 26, 2014 report were addressed. The findings of my June 26, 2014 report are based on review of materials submitted by your office (enumerated later), training materials I have developed concerning the role of and expectations for consultants in impact fee analyses, my involvement in reviewing impact fee facilities plans (IFFP) and Impact Fee Analysis (IFA) in other cases, my experience completing IFFP and IFA for other jurisdictions, as well as my knowledge of the requirements for completing IFFP and IFA in the state of Utah in accordance with statutory requirements and in compliance with related advisory opinions of the Utah State Real Property Ombudsman. Summary The following deficiencies were identified in the June 26, 2014 report: Overall, in both the 2009 and the 2014 reports, the following deficiencies are present: 1. Incorrect or absence of basis for proposed level of service. 2. Inclusion of existing deficiencies in the level of service and costs allocated to new development. 3. Inaccurate apportionment of share of existing excess capacity and future infrastructure costs to new development. 4. Unclear basis for costs used to calculate impact fee. 5. Failure to include interest on the impact fee account in funding sources. 6. Lack of proportional distribution between land use types. 7. Qualifications on the certifications. 8. IFFP and IFA reports that include numbers that cannot be replicated and information and numbers without identifying sources. The thinking of the analysis cannot be followed based on the reports. The basis for each finding was discussed in detail in the June 26, 2014 report. The following analysis estimates the appropriate range for the TSSD wastewater collection and treatment impact fee if the identified deficiencies are corrected in the analyses. Table 1 provides the summary adjustment for each of the deficiencies for each analysis. 1
Table 1: Summary of Impact Fee Adjustments Original Adjusted Difference 2009 2014 % Difference Original Adjusted Difference % Difference gpd/eru 400.0 245.1-154.9-39% 313.5 245.1-68.4-22% ERUs available in Existing Plant 36,250 59,160 22,910 63% 24,968 31,936 6,968 28% - Value of Existing Plant $107,379,916 $30,694,101 $76,685,815-71% $143,967,976 $143,967,976 $0 0% New Project IFFP $106,772,000 $106,772,000 $0 0% $22,371,116 $10,058,234 -$12,312,882-55% Impact Fee/ERU $3,812 $1,393 -$2,419-63% $2,475 $1,317 -$1,158-47% Source: GSBS Findings 1. Incorrect or absence of basis for proposed level of service. 2009 The analysis fails to identify or justify the basis of a level of service (LOS) of 400 gallons per day (gpd) per equivalent residential unit (ERU). In the 2009 CFP the actual gpd per ERU is 345 gpd, approximately 14 percent lower than the ERU value used in the analysis. The CFP also fails to scrutinize the 345 gpd actual utilization to identify the presence of existing deficiencies in the wastewater collection and treatment system, therefore some percentage of the average use per ERU may be attributable to existing deficiencies and therefore ineligible for inclusion in the LOS per ERU. 2014 The analysis incorrectly includes flows from existing deficiencies (excess infiltration) in the LOS per ERU. The LOS per ERU should be 224 gpd/eru plus some amount for appropriate infiltration. The range of appropriate infiltration ranges from 4.5 percent according to Darrel Dixon, expert witness in this case to 15 percent identified by Bowen & Collins as newly installed pipe infiltration in the IFFP. Using the analysis provided by Arthur C. Nelson, the estimated appropriate LOS/ERU is 245.1 gpd. 2. Inclusion of existing deficiencies in the level of service and costs allocated to new development. Both analyses incorrectly include existing deficiencies (as discussed above) in the calculation of new development. This incorrect inclusion affects all subsequent calculations including the percentage and cost of existing infrastructure available to new development and the new capacity needed to serve new development. 3. Inaccurate apportionment of share of existing excess capacity and future infrastructure costs to new development. The understatement of available existing capacity and overstatement of needed new infrastructure is a natural result of the overstatement of the LOS per ERU. The inappropriate LOS/ERU calculation understates the ability of existing infrastructure to serve new development by at least 22 percent in the most conservative approach. 4. Unclear basis for costs used to calculate impact fee. 2
2009 The CFP/IFA based the calculation of buy-in to new capacity on the depreciated replacement cost of the existing plant. This increases the value of the infrastructure that new development will be purchasing and provides a windfall to the district. The buy-in calculation is more appropriately (and required by statute) based on the actual cost to the entity. 2014 The IFFP/IFA failed to deduct abandoned, replaced or demolished assets from the cost of the existing plant used as the basis for the buy-in calculation. The IFFP/IFA also failed to provide detailed information on planned future projects and the basis of cost estimates for $3.3 million in collection system projects. 5. Failure to include interest on the impact fee account in funding sources. Impact fee funds must be deposited in a separate, interest bearing ledger account with interest earned on the fund used for impact fee eligible projects. The TSSD impact fee account had significant balances at the time of the analyses. Interest earned on the account was not included in the analysis. 6. Lack of proportional distribution between land use types. The analyses failed to identify the proportional difference in ERU-based utilization between land use types. The methodology provided to member jurisdictions to calculate the impact fee owing to the district included a minimum charge regardless of actual impact. The analysis does not provide adequate information to determine if the methodology used results in a fee proportional to the impact from various land uses. 7. Qualifications on the certifications. The qualifications do not meet the standard of care but have no direct impact on the calculation of the impact fee. 8. IFFP and IFA reports that include numbers that cannot be replicated and information and numbers without identifying sources The failures may not have a direct impact on the calculation of the impact fee. Detailed Adjustments Figure 1 is Figure 3.6 from Lewis Young Robertson & Burningham s original 2009 Impact Fee Analysis report recalculated based on the findings in my June 26, 2014 report. The recalculated 2009 impact fee assumes the following corrections: Adjusted LOS/ERU based on actual average utilization and adjustment for existing deficiencies (infiltration) Adjusted cost of existing plant for buy-in 3
Adjusted number of existing capacity ERUs available for new development. 4
FROM 2009 IMPACT FEE ANALYSIS FOR TSSD REVISED Cost to Treatment/ Total Cost to Impact Fee per Notes on Total Estimated Value % to Component Collection % to Growth Growth Future ERUs ERU Adjustments Treatment Impact Fee Future Improvements $ 106,772,000 70.28% $ 75,043,328 60.00% $ 45,025,997 59,160 $ 761 Notes 1,2,3 Series 2007 Bond Debt Service 44,536,664 71.97% 32,053,403 60.00% 19,232,042 59,160 325 Notes 2,3 Less 2007 Bond Proceeds (31,877,496) 71.97% (22,942,496) 60.00% (13,765,498) 59,160 (233) Notes 2,3 Future Bond Debt Service 100,616,126 100.00% 100,616,126 60.00% 60,369,676 59,160 1,020 Notes 2,3,4 Less 2009 Bond Proceeds (60,727,000) 100.00% (60,727,000) 60.00% (36,436,200) 59,160 (616) Notes 2,3,5 Actual Cost of Existing System 30,694,101 80.02% 24,559,888 11.37% 2,792,459 59,160 47 Notes 3,6,10 $ 190,014,395 $ 148,603,249 $ 77,218,476 $ 1,305 Collection Impact Fee Future Improvements $ 106,772,000 22.71% $ 24,252,000 82.82% $ 20,086,100 122,399 $ 164 Note 7 Series 2007 Bond Debt Service 44,536,664 28.03% 12,483,261 64.68% 8,074,651 122,399 66 Note 7 Less 2007 Bond Proceeds (31,877,496) 28.03% (8,935,000) 64.68% (5,779,500) 122,399 (47) Note 7 Future Bond Debt Service 100,221,500 0.00% - 93.40% - 122,399 - Note 7 Less 2009 Bond Proceeds (55,500,000) 0.00% - 93.40% - 122,399 - Note 7 Actual Cost of Existing System 30,694,101 19.99% 6,134,303 77.58% 4,758,992 122,399 39 Note 6,10 $ 194,846,769 $ 33,934,564 $ 27,140,243 122,399 $ 222 Miscellaneous Fees Engineering, Planning Expense $ 726,194 $ 726,194 100.00% $ 726,194 59,160 $ 12.28 Note 3 Less: Cash On Hand, 2009 $ (6,751,966) 59,160 (114) Notes 3,8 Less: Anticipated Interest on Funds $ (1,875,000) 59,160 (32) Notes 3,9 Totals $ 195,572,963 $ 183,264,007 $ 105,084,913 $ 1,393 Notes: 1. $75,043,328 is cost of plant shown on 2014 asset list included in Appendix D of 2014 Sewer Impact Analysis by Zions Bank for TSSD 2. As per opinion of Darrel Dixon, 60% of plant expansion cost should be assigned to growth, not 80% as shown on 2009 analysis 3. If ERU value of 400 Gallons Per Day is replaced with ERU value of 245.1 Gallons Per Day, facility will serve 59,160 new ERU's not 36,250. 4. After the issuance of the 2010 Bonds, Geo. Baum provided an Issue Summary showing total debt service of $100,616,126 over the life of the bonds 5. Geo. Baum Issue Summary showed use of $60,727,000 of bond proceeds as transferred to project construction fund. 6. Using Asset Schedule in 2009 IFA, Appendix B, Actual cost of facilities was $30,694,101, $24,559,888 for treatment and $6,134,303 Collection 7. If ERU value of 400 Gallons Per Day is replaced with ERU value of 245.1 Gallons Per Day, facilities will serve 122,399 ERU's not 75,000. 8. On April 30, 2009, the TSSD Ledgers show $6,751,966 cash on hand in the impact fee fund. The 2009 Fees were enacted in May of 2009. 9. Assume $7,500,000 balance in impact fee fund, 1% annual interest for 25 year life of bonds. 10. Original analysis used "Depreciated Replacement Value" as existing system cost. This has been corrected to reflect "Acutal Cost" as required by the Impact Fees Act. Figure 1 5
Figure 2 is Table J.1 Sewer Impact Fee Calculation from Appendix J of the 2014 Impact Fee Analysis report by Zions Bank Public Finance recalculated based on the findings in my June 26, 2014 report. The recalculated 2014 impact fee assumes the following corrections: Adjusted LOS/ERU based on actual average utilization and adjustment for existing deficiencies (infiltration) Adjusted number of existing capacity ERUs available for new development Elimination of non-specific future projects on IFFP. 6
APPENDIX J: CALCULATION OF THE IMPACT FEE PER ERU Timpanogos Special Service District A B C D E F G H I J K L M TABLE J.1: SEWER IMPACT FEE CALCULATION 1 Collection and Treatment Components Total Cost to Component % that will Serve Ten Year Demand Dollar Amount that will Serve Ten Year Demand Total Ten Year Project Capacity Existing Capacity % to Ten Year Growth Impact Fee Cost ERUs to be Served Cost per ERU 1 2 Collection Facilities 2 3 Future 10 Year Capital Projects $ 5,661,828 22.36% $ 1,266,192 31,936-100.00% $ 1,266,192 31,936 $ 39.65 3 4 Future Collection Related Debt to be Issued - 0.00% - 31,936-100.00% - 31,936-4 5 Existing Collection Projects 26,501,843 17.70% 4,690,826 31,936-100.00% 4,690,826 31,936 146.88 5 6 Existing Collection Related Debt - OUTSTANDING (Includes Interest) 2,027,809 17.70% 358,922 31,936-100.00% 358,922 31,936 11.24 6 7 Unspent Collection Impact Fee Funds 100.00% - 31,936-100.00% - 31,936-7 8 Subtotal $ 34,191,480 $ 6,315,940 $ 6,315,940 $ 197.77 8 9 9 10 Treatment Plant 10 11 Future 10 Year Capital Projects $ 4,396,406 26.10% $ 1,147,462 31,936-100.00% $ 1,147,462 31,936 $ 35.93 11 12 Future Treatment Related Bonds - 0.00% - 31,936-100.00% - 31,936-12 13 Existing Treatment Projects $ 117,466,133 28.80% $ 34,922,681 31,936-100.00% 34,922,681 31,936 1,093.53 13 14 Existing Treatment Related Debt - OUTSTANDING (Includes Interest) $ 38,858,422 42.20% $ 16,083,501 31,936-100.00% 16,083,501 31,936 503.62 14 15 Unspent Treatment Impact Fee Funds 100.00% $ - 31,936-100.00% - 31,936-15 16 Subtotal $ 160,720,961 $ 52,153,644 $ 52,153,644 $ 1,633.08 16 17 17 18 Miscellaneous 18 19 Cash on Hand in Impact Fee Funds - 2014 $ (15,655,386) 31,936 (490.21) 19 20 Anticipated Interest on Impact Fee Funds - 2014-2024 (750,000) 31,936 (23.48) 20 21 Subtotal - - (16,405,386) (514) 21 22 22 23 Total Impact Fee Per ERU $ 194,912,441 $ 58,469,584 $ 42,064,199 $ 1,317.15 23 24 24 25 Notes - Removed $10,000,000 of unspecified projects; changed 313.5 Gallon Per Day ERU to 245.1 Gallon Per Day ERU 25 26 Added adjustments for Estimated Cash on Hand and Interest earned on funds on hand. 26 Figure 2 7
As can be seen the adjustments made based on the findings of my original report result in a significantly lower impact fee per ERU. Respectfully submitted, Christine C. Richman, MBA 8