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HomeMy WebLinkAbout09-29-16 Correspondence - SWMBIA to Kukulski (Commission Copied) - Impact Fee Program Administration Assessment Affiliated With STo� Southwest Montana o Building Industry Association NAHB 1716 W. Main St. Suite 8-G • Bozeman MT 59715 • (406) 585-8181 BUILDING INDUSTRY National Association ASSOCIATION FAX(406) 585-7530 o\xnv.swmbia•org of Home Builders Executive Corllnvttee Brian Popiel Chairman of the Board September 29, 2016 Arete Builders/Resource Site Services 06-579-1362 Andy Rowe 1"Vice Chairman Chris Kukulski, Bozeman CityManager Alpenglow Builders g 06-920-1029 C/o City Clerk's Office yl Seymour Suite 201, City Hall Darr \ice Chairman P.O. Box 1230 Montana Tide&Escrow Bozeman MT 59771 406-587-7702 Mike'Thompson Dear Chris Associate Vice Chairman e Kenyon Noble Lumber 06-586-2371 Enclosed you will find a copy of the final report from DPFG regarding the Tylene Vitt assessment of the City of Bozeman's administration of the impact fee Treasurer Rudd&Company program. 06-585-3393 Nathan Albrecht SWMBIA began this process as a benefit to the past, present and future fee Immediate Past Chairman payers of Bozeman as judicially recommended in 2005. When we began Pro Builders 06-586-1792 the process earlier this year, we did not anticipate any issues, but this independent study illuminates troubling questions that must be answered. Board ofDirectore ASSOCIATES: SWMBIA strives to improve housing affordability, availability and choice, Dist,ctive Fiedler while recognizing the challenges facing the housing industry and our 400-586-7172 member businesses. This study demonstrates our dedication to fiscal R,an Ballengcr accountability, as undue regulatory costs eliminate families from the Stockman Bank opportunities afforded by homeownership. 406-388-5025 Clint Field Torn�soor On behalf of the SWMBIA leadership, we ask for a response by October 5th 06-586-13045 tore 2016 regarding the misappropriation of over $7,000,000 in impact fee funds. BUILDERS: Rob Evans Please know the Association is willing to be a resource as you remedy and Constructive Solutions,Inc. address the situation regarding the expenditure of Bozeman impact fees. 06-04-1560 David Graham Graham Enterprises Sincerely, 06-580-8312 - Craig Kirchhoff Kirchhoff Construction �� ' � 06-581-8073 Linda Revenaugh Andrew Mazzefla MazzeExecutive Officer 406-60 -Construction06-600-74G4 Southwest Montana Building Industry Association Bryan Morrison Majestic Custom Homes cc: Carson Taylor, Cyndy Andrus, Chris Mehl, Jeff Krauss, IHo Pomeroy 06-580-9594 Dan Barnes Mountain High Homes,Inc. 406-581-0667 Linda@swmbia.org ww�v.sxvmbia.org AGREED UPON PROCEDURES CITY OF BOZEMAN DEVELOPMENT IMPACT FEE ACCOUNTS Prepared By: Development, Planning and Financing Group, Inc. VDPFG DEVELOPMENT PLANNING FINANCING GROUP September 2, 2016 Orange County,CA Sacramento,CA Phoenix,AZ Las Vegas,NV Boise,ID Denver,CO Dallas,TX Austin,TX Tampa,FL Orlando,FL Charleston,SC Research Triangle,NC 3302 EAST INDIAN SCHOOL ROAD D P F G_ PHOENIX,AZ 85018 DEVELOPMENT PLANNING & FINANCING GROUP, INC. TEL(602)381-3226 CIP/DIF Review FAX(602)381-1203 Reviewed the City's CIP as well as the funding of the improvements included in the CIP www.dpfg.com through a review of approximately 66 percent of the DIF account expenditures for the five (5) year analysis period as follows: September 2, 2016 1. Reviewed the City's CIP, DIF Account Balance Reports and general journals by DIF account for the last five (5)years. RE: City of Bozeman Development Impact Fee Review 2. For all DIF transactions selected from the general journal, requested supporting documentation from the City. To Whom It May Concern: 3. Determined the appropriateness of each transaction by tracing the selected expenditure in to the listing of eligible public facilities as outlined in the CIP and/or As a follow-up related to the 2005 litigation between the City of Bozeman, Montana("City") the DIF Study as appropriate. and the impact fee payer class in relation to the collection and expenditure of development 4. Discussed any discrepancies (if any) with the appropriate City personnel. impact fees ("DIF"), we have performed certain agreed upon procedures ("Agreed Upon Procedures")related to the review("Review") of the City's DIF accounts as outlined below. DIF Implementation Plan The purpose of the Review was not to examine the City's accounting records in accordance Evaluated the City's implantation of the DIF programs as follows: with generally accepted financial auditing or attestation standards but rather to determine whether the City is properly utilizing funds collected through its DIF program for the 1. Reviewed the Resolution adopting the City's DIF program from the City. construction of public improvements as outlined in the City's Development Impact Fee 2. Obtained the City's current DIF pricing information from Development Service Ordinance ("Ordinance"), supporting DIF studies and Montana Code Annotated ("MCA") 7- Department or its equivalent. 6-1601 et seq. ("Act"). In accordance with the Agreed Upon Procedures, we have reviewed approximately 66 Report of Findings percent of the City's DIF expenditures in terms of dollar volume. For more information on 1. Prepared a written report of findings outlining the results of our Agreed Upon our transaction sampling, see Exhibit A. Procedures. I. Agreed Upon Procedures Scope of Work II.Executive Summary The following tasks were performed as part of our Agreed Upon Procedures. The following is a summary of our Review findings: Reviewed DIF Ordinance and Supporting Documents/Studies A. Transaction Support — Based upon our Review we noted that all of the City's DIF 1. Obtained the City's Ordinance as well as supporting studies and back-up materials transactions reviewed agreed to the general ledger and that the transactions had reasonable including but not limited to: Development Impact Fee Studies; City's Capital levels of backup and supporting documentation. Improvement Program ("CIP"); Annual Statements of DIF Account Balances for the last five (5) year fiscal period; last five (5) years of the City's Annual Financial B. Water — Of all the expenditures shown in the general ledger, it was noted that the City Reports; DIF Account General Journals for the last five (5) fiscal years showing utilized 99.7 percent, or $15.1 million of its Water Fee (as herein defined) to fund the water capacity component (e.g. water treatment plant) of the water system when only detailed transaction descriptions and other reports as required. > approximately 72.7 percent of the Water Fee or $11.0 million] should have been used for this purpose. i Assumes a 2,500 square foot home on a 10,000 square foot lot. AUSTINJX DALLAS,TX TAMPA,FIL ORANGE COUNTY, • In our opinion, the water DIF funds that were to be collected and used by the City for the E. Streets — It appears as though the City may be using DIFs to construct public construction of the water distribution system were used instead to fund the water treatment improvements that represent an increase in the levels of service. The City has utilized plant. This is in conflict with the Water Study and the Act. By our estimation, the City should approximately $763,000 to finance the construction of the College Avenue Roundabout reimburse the water distribution account approximately $4.1 ($15.1-$11.0) million to ("Roundabout"). Prior to the construction of the aforementioned Roundabout, the City had no replenish the DIF account for the funds that were expended on the water treatment plant but roundabouts in its inventory of streets. Accordingly, it would appear that inclusion of the should have been used for the water distribution improvements. Alternatively, if the City is Roundabout in the Street Study and the subsequent funding of this improvement represents not going to utilize DIF funds for the construction of water distribution lines, it is suggested the utilization of Street Fees to finance a higher level of service which is in direct conflict that the City reflect actual Water DIF expenditures on water distribution improvements. We with MCA 7-6-1602(7)(d). It is suggested that representatives of the City and the have estimated that an approximate $811 reduction in the Water Fee would be justified. development community meet to discuss the potential use of Street Fees to increase the levels of service. Additionally, Water Fees of approximately $187,000 were expended for the purpose of obtaining a water resource plan. However, pursuant to the Water Study, Water Fees can only E. Financial Recap be utilized for "improvements, land and equipment with useful life of 10 years or more." The following table illustrates our estimate of the potential financial impact of our Review: Accordingly, we recommend that the City reimburse these Water DIF expenditures as well. City of Bozeman C. Wastewater—It was noted that the City utilized 90.7 percent, or $4.7 million of its Sewer Estimates of DIF Account Rebalancing Fee (as herein defined)to fund the sewer capacity component(e.g. water reclamation facility) when approximately 48.5' percent of the Sewer Fees should have been used for this purpose. Estimated Expenditures Estimated Account Description Total Expenditures�'� Per the Study and the Act Rebalancing It appears as though approximately $2.2 million of Sewer Fees should have been used for the Water Amount %of Total Amount %of Total construction of sewer collection lines but were instead utilized by the City to fund the water Capacity $ 15,088,473 99.7% $ 11,001,468 72.7% reclamation facility ("WRF"). This is in conflict with both the Sewer Study and the Act. In Distribution $ 42,170 0.3% $ 4,129,175 27.3% $ 4,087,005 order to rebalance the Sewer DIF accounts, we estimate that the City should reimburse the Water Resource Plan(2) $ 186,750 $ - $ 186,750_ Sewer DIF account$2.2 million to replenish the funds use for the WRF that should have been Wastewater used for sewer collection lines. Alternatively, if the City is not going to utilize DIF funds for WRF $ 4,741,328 90.7% $ 2,532,932 48.5% the construction of sewer collection lines, it is suggested that the city reduce its Sewer Fee to Collection system $ 483,769 9.3% $ 2,692,165 51.5% $ 2,208,396 reflect actual expenditures on sewer collection improvements. We have estimated that an Fire $846 reduction in the Sewer Fee is warranted. Fire Station 3 (3) $ 934,719 100.0% $ - 0.0% $ 934,719 D. Fire — It was noted that the City utilized approximately $935,000 to fund debt service Streets related to the construction of Fire Station 3. As the construction of Fire Station 3 was Roundabout(4) $ 763,460 necessary to correct an existing deficiency within the City; the use of Fire Fees (as herein Total Amount to be Rebalaced i $ 7,230,120 defined) to correct an existing deficiency is an inappropriate use of Fire Fees. Fire Fees are Source:City of Bozeman DIF General Ledger,the Act,and Water,Sewer,and Fire Studies. only to be used on Fire Stations 5, 6 and 7. As the City should have utilized its own funds to Footnotes pndittores o frm fiscal years 2010112 to 2015116 per the City's DIFgeneral ledger. pay for Fire Station 3, it is recommended that the City reimburse the Fire DIF account (1)Amounts based on all DIF exe �I $935,000. (2)Water Resource Plan expenditure which is in conflict with the Act. (3)Fire Station 3 was constructed to correct existing deficiencies within the City.Pursuant to the Act,DIFfimds can not be utilized to correct existing deficiencies. (4)Roundabout not included in total.Level ofservice to be discussed with City. IV.Detailed Findings A. Transaction Support — Based upon our Review of the transactions selected from the City's general ledger as outlined in Exhibit A along with appropriate supporting documentation as outlined in our Agreed Upon Procedures, we did not note any mechanical discrepancies which would lead us to believe that City staff is not documenting its DIF transactions. 3 4 Water Development Impact Fee B. Water Development Impact Fee Review Estimate of Typical Water Fee Based upon our review of the TishlerBise's Water Development Impact Fee Study dated Water Capacity September 23, 2012 ("Water Study"), the water DIF ("Water Fee") appears to be calculated Square Water Total Fee as a % of using a hybrid approach of both incremental expansion and plan based methods. Footage of Water Distribution Water Total Water The Water Fee is broken into two separate categories as follows: Home (1) Capacity System(2) DIF DIF - 2,5001 $ 2,227 1 $ 836 1 $ 3,063 1 72.7% 1. Water Capacity Component-Includes the water treatment plant, and Footnote: (])Assumes average 2,500 SF home situated on a 10,000 SF lot. 2. Distribution System Component-Includes the storage reservoir and transmission lines. (2)calculation of Water Distribution Fee Lot Size 10,000 As shown below the water capacity component of the Water Fee varies from $964 to $2,602 SF in Acre 43,560 % per unit depending upon the size of the home. The distribution system costs are $3,641 per %of Acre 23.0 for 1 Acre 23.01 net acre. Fee jor 10,000 SF $ 836 City of Bozeman 2012 Water Development Impact Fee Schedule Pursuant to the City's general ledger, expenditures related to the Water Fee accounts for fiscal years 2010/2011 to 2015/2016 and as illustrated in the table below,we noted that $15.1 Water Capacity in Water Fees or 99.7 percent of the Water Fee expenditures. These Water Fees were utilized Square Water Total Fee as a % of to fund water capacity costs (e.g. water treatment plant) and only $42,200 or 0.3 percent was utilized to fund water distribution lines. Footage of Water Distribution Water Total Water Home Capacity System DIF DIF City of Bozeman 1,400 or less $ 964 $ 3,641 $ 4,605 20.9% Water Fee Expenditures 1,401 to 1,600 $ 1,235 $ 3,641 $ 4,876 25.3% 1,601 to 1,800 $ 1,478 $ 3,641 $ 5,119 28.9% Description Amount % of Total 1,801 to 2,000 $ 1,694 $ 3,641 $ 5,335 31.8% Water Capacity $ 15,088,473 99.7% 2,001 to 2,200 $ 1,890 $ 3,641 $ 5,531 34.2% Water Transmission $ 42,170 0.3% 2,201 to 2,400 $ 2,068 $ 3,641 $ 5,709 36.2% TOTAL $ 15,130,643 100.0% 2,401 to 2,600 $ 2,227 $ 3,641 $ 5,868 38.0% Source:Includes all Water Fee expenditures from DIF general ledger. 2,601 to 2,800 $ 2,377 $ 3,641 $ 6,018 39.5% As the Water Study indicates that "A sufficient benefit relationship requires that facility fee 2,801 to 3,000 $ 2,517 $ 3,641 $ 6,158 40.9% revenues be segregated from other funds and expended on the facilities for which the fees 3,001 or more $ 2,602 $ 3,641 $ 6,243 41.7% were charged (emphasis added)" 2 it would appear that the City has expended more Water Average 1 $ 1,905 $ 3,641 $ 5,546 33.7% Fees on water capacity (e.g. water treatment plant) than the Water Fees collected for such Source: TishlerBise, Water Development Impact Fee Study,September 23,2012 pg.20 purposes. For illustrative purposes and using the Water Fee schedule on the following page taken from More specifically, 99.7 percent of the Water Fee expenditures related to Water Capacity the Water Study, assuming a 10,000 square foot ("SF") lot and a 2,500 SF home, a home improvements when only approximately 72.7 percent of these Water Fee collections should builder would pay a Water Fee of$3,063 of which 72.7 percent or $2,227 is to be used to have been utilized for such purposes. Of the Water Fee collections, 27.3 (100-72.7) percent fund water capacity improvements (e.g. water treatment plant). The remaining 27.3 (100- 72.7)percent or$836 is to be used to fund water distribution facilities. Z TishlerBise,Water Development Impact Fee Study, September 23,2012,pg.2. 'Assumes a 2,500 square foot home on a 10,000 square foot lot. 5 6 should have used to construct water lines however, of the transactions reviewed, only 0.3 City of Bozeman percent of the Water Fees were utilized to fund water lines. Estimate of Revised Water Fee(1) In order to compliant with the Water Study and the Act, it is recommended that the City Water Water Total reconcile the Water Fee collections and expenditures associated with each of the Capacity Distribution Water aforementioned water facility categories and replenish those Water Fees that the City Description DIF System DIF DIF collected for the construction of water distribution lines but instead utilized to fund the Current Water Fee as established by Study(2) $ 2,227 $ 836 $ 3,063 water treatment plan Revised Water Fee based on actual City expenditures 13) $ 2,227 $ 25 $ 2,252 As shown on the schedule below, it is our estimation that approximately $4.1 million will Difference $ 811 be required to rebalance the Water DIF Account between the water capacity and water Footnotes: distribution components of the Water Fee. (1)Fees assume an average home to be a 2,500 SFsingle family residential unit situated on a 10,000 SF lot('Average City of Bozeman Home'). Estimate of Water DIF Account Rebalancing (2)Pursuant to the 2012 TishlerBise Water Study,the Water Fee for an Average Home was calculated to be$3,063. Pursuant to the Water Study,the Water Fee was allocated at 72.7%for water capacity and 27.3%for the water Expenditures Limted Account distribution system. Description Total Expenditures Per the Study and the Act 1, Rebalancing (3)Assumes a$2,252 DIF based on the City only expending 3%for the water distribution system. (Original Water Water Amount %of Total Amount %of Total Distribution System Fee of$836x actual percentage ofexpenditures at 3%=$25) Capacity $ 15,088,473 99.7% $ 11,001,468 72.7% $ (4,087,005) Distribution $ 42,170 0.3% $ 4,129,175 27.3% $ 4,087,005 Source:CityofBo=eman DIF General Ledger,the Act,and Water Study. Additionally, the Water Study indicates that `By law, impact fees can only be used for Footnotes: capital improvements, not operating, maintenance, or rehabilitation costs". Capital (1)Amounts based on all DIF expenditures from fiscal years 2010112 to 2015116 per the City's DIFgeneral ledger. improvements as defined by the Act mean "improvements, land and equipment with a useful life of 10 years or more that increase or improve the service capacity of a public facility"4. As Given the fact that the City has based its Water Fee upon home and lot size, it may be such, the expenditure of $186,7505 of Water Fees on the Water Resource Plan which is necessary for the City to go through all the Water Fees paid over the analysis period and neither"improvements, land [nor] equipment" appears to be conflict with the Act. segregate the Water Fees received into separate accounts for water capacity and water transmission line costs. It is suggested that the Water Fees utilized to pay the Water Resource Plan be replaced by the City and the cost of the Water Resource Plan be funded through some other means Going forward it is recommended that the City establish two subaccounts within the Water such as user fees and/or rates. Fee accounting system to account for the collection and expenditure of Water Fees for water capacity facilities and water transmission lines. This will help prevent the expenditure of funds collected for water capacity on water distribution lines and vice versa. C. Wastewater Development Impact Fee Review Lastly, if the City does not intend to utilize Water Fees to fund water distribution facilties, Our review of the Wastewater Development Impact Fee Study dated September 23, 2012 it is recommended that the City reduce the Water Fee in proportion to the actual amounts ("Sewer Study"), indicated that a hybrid approach was used to estimate the sewer DIF spent during the analysis period with respective to water components. The table on the ("Sewer Fee"). TischlerBise appears to have utilized both an incremental plan based methods following page estimates the revised Water Fee amount to calculate the Sewer Fee. Like the Water Fee, the Sewer Fee is broken into two separate categories: 1. The Water Reclamation Facility("WRF"), and 4 Montana Code Annotated 2015 Section 7-6-1601 (1)(a). s Of the$186,750 expended per the City's General Ledger,we reviewed only$131,790 of these expenditures. 7 8 2. The Sewer Collection System. Sewer Development Impact Fee Estimate of Typical Sewer Fee The component of the Sewer Fee related to the WRF varies from $380 to $1,026 per unit depending upon the size of the home. The sewer collection system costs are $4,065 per net acre. Collection City of Bozeman Square System Total WRF Fee as 2012 Sewer Development Impact Fee Schedule Footage of Cost per Sewer a % of Total Home (1) WRF Fee Net Acre (2) DIF Sewer DIF Collection 2,500 $ 878 1 $ 933 1 $ 1,8111 48.5% Square System Total WRF Fee as Footnote: Footage of Cost per Sewer a % of Total (])Assumes average 2,500 SF home situated on a 10,000 SFlot. Home WRF Fee Net Acre DIF Sewer DIF (2)Calculation of Water Distribution Fee 1,400orless $ 380 $ 4,065 $ 4,445 8.5% Lot Size 10,000 1,401 to 1,600 $ 487 $ 4,065 $ 4,552 10.7% SF in Acre 43,560 1,601 to 1,800 $ 583 $ 4,065 $ 4,648 12.5% %ofAcre 23.0% 1,801 to 2,000 $ 668 $ 4,065 $ 4,733 14.1% Feefor Acre 4,065 2,001 to 2,200 $ 745 $ 4,065 $ 4,810 15.5% Feefor 10,000 SF $ 933 2,201 to 2,400 $ 815 $ 4,065 $ 4,880 16.7% 2,401 to 2,600 $ 878 $ 4,065 $ 4,943 17.8% Given our analysis of all expenditures related to the Sewer Fee accounts for fiscal years 2,601 to 2,800 $ 937 $ 4,065 $ 5,002 18.7% 2010/2011 to 2015/2016 and as illustrated in the table below, we noted that $4.7 million in 2,801 to 3,000 $ 992 $ 4,065 $ 5,057 19.6% Sewer Fees or 90.7 percent of the Sewer Fee expenditures analyzed were utilized to fund the WRF costs. Additionally, $484,000 or 9.3 percent of the Sewer Fee expenditures analyzed 3,001 or more $ 1,026 $ 4,065 $ 5,091 20.2% were utilized to fund the sewer collection system. Average I $ 751 $ 4,065 $ 4,816 15.6% Source: TishlerBise,Sewer Development Impact Fee Study,September 23,2012 pg. 18 City of Bozeman Sewer Fee Expenditures For illustrative purposes and using the Sewer Impact Fee schedule on the following page taken from the Sewer Study, assuming a 10,000 SF lot and a 2,500 SF home, a home builder Description Amount % of Total would pay a Sewer Fee of$1,811 of which 48.5 percent or $878 is to fund the WRF and the WRF $ 4,741,328 90.7% remaining 51.5 (100 - 48.5) percent or $933 is to be used to fund the sewer collection Sewer Collection System $ 483,769 9.3% system. TOTAL $ 592259097 100.0% Source:Include all Sewer Fee expenditures from DIF general ledger. The Sewer Study states that "A sufficient benefit relationship requires that facility fee I revenues be segregated from other funds and expended on the facilities for which the fees were charged (emphasis added)' . It would appear that the City has expended more Sewer Fees on the WRF than the Sewer Fees collected for such an improvement. More specifically, 90.7 percent of the Sewer Fee reviewed were expended for the WRF when only approximately 48.5 percent? of the Sewer Fee collections should have been utilized for such purposes. Of the Sewer Fee collections, 51.5 (100-48.5) percent of the Sewer Fee 6 TishlerBise,Sewer Development Impact Fee Study,September 23,2012,pg.2. 9 10 collections should have used to fund the sewer collection system. However of the City of Bozeman transactions reviewed, only 9.3 percent of the Sewer Fees were utilized to fund the sewer Estimate of Revised Sewer Fee (1) collection system. System Sewer In order to be compliant with the Sewer Study and the Act, it is recommended that the City Description WRF DIF DIF DIF reconcile its Sewer Fee collections and expenditures associated with each of the aforementioned sewer facility categories and replenish those Sewer Fees that the City Current Sewer Fee as established by Study(2) $ 878 $ 933 $ 1,811 collected for the construction of sewer collection lines but instead utilized to fund the Revised Sewer Fee based on actual City expenditures (3) $ 878 $ 87 $ 965 WRF Difference $ 846 It is our estimation, as shown on the schedule below, that the City should reimburse the Footnotes: Sewer DIF account approximately $2.2 million to replenish the Sewer DIF that were (])Fees assume an average home to be a 2,500 SFsingle family residential unit situated on a 10,000 SF lot collected for the sewer collection lines but used for the WRF. ("Average Home'). City of Bozeman (2)Pursuant to the 2012 TishlerBise Sewer Study,the Sewer Fee for an Average Home was calculated to be $1,811.Pursuant to the Sewer Study,the Sewer Fee was allocated at 48.5%to the Water Reclaimation Facility Estimates of Sewer DIF Account Rebalancing and 51.5%to the sewer collection system. Expenditures Limted Account (3)Assumes only a$87 sewer collection system fee based on the City only expending 9.3%for the sewer 11�Description Total Expenditures Per the Study and the Act Rebalancing collection system. (Original Collection System fee of$933 x actual percentage ofexpenditures at 9.3%=$87) Wastewater Going forward it is recommended that the City utilize subaccounts within the Sewer Fee WRF $ 4,741,328 90.7% $ 2,532,932 48.5% $ (2,208,396) accounting system to account for the collection and expenditure of each one of these Fee Collection System $ 483,769 9.30/. $ 2,692,165 51.5% $ 2,208,396 components. Source:City of Bo=eman DIF General Ledger,the Act,and Sewer Study. Footnotes: D. Fire Development Impact Fee Review (!)Amounts based on all DIF expenditures from fiscal years 2010112 to 2015116 per the C ty's DlFgeneral ledger. Given the fact that the City has broken out its Sewer Fees based on home size and as each Back rg ound Sewer Fee is depended on the size of home and as well as lot size,, it may be necessary for Based upon our review of the TishlerBise's Fire Development Impact Fee Study dated the City to go through all the Sewer Fees received over the analysis period and segregate September 23, 2012 ("Fire Study"), the City's consultants utilized a planned based method the funds received between sewer capacity and sewer transmission lines. to estimate the fire DIF ("Fire Fee") required to fund 75 percent of the construction and equipping of Fire Stations 4 thru 7, or said more simply, Fire Station 5, 6, and 7. Lastly, if the City does not intend to expend Sewer Fees to fund sewer transmission lines, it The Fire Study indicates that`Bozeman's initial fire station was constructed in the late 1800s is recommended that the City reduce their Sewer Fee in proportion to the actual amounts soon after incorporation. A second fire station was provided in 1974. In 2000, Bozeman's spent during the analysis period for each respective sewer component. The table on the ISO (Insurance Services Offices) rating was downgraded which highlighted the construction following page estimates the revised Sewer Fee. of a third fire station, not completed until 2009. Because development after 2000 further deteriorated fire and emergency levels,...."10. Additionally the Fire Study states that "Given the fiscal constraint that Bozeman probably needs two more years to pay off existing debt obligations on the fire station 3 and then lead time to schedule construction of fire station 4, TishlerBise recommends that one of the four future fire stations be regarded as an existing deficiency that will not be funded by impact fees."11 8 TishlerBise Fire Development Impact Fee Study,September 23,2012,pg.5. 9 TishlerBise Fire Development Impact Fee Study,September 23,2012,pg. 8. to TishlerBise Fire Development Impact Fee Study,September 23,2012,pg.7. 11 TishlerBise Fire Development Impact Fee Study, September 23,2012,pg. 8. 11 12 In essence, the City was required to construct Fire Stations 3 and 4 to correct existing fire place for the existing users to make improvements to the existing system to match the higher levels of service deficiencies within the City. TischlerBise further states in the Fire Study that level of service"14 "impact fees will not be used to correct existing deficiencies but will only pay for the growth- related share of future fire stations."12 Findings Based upon our analysis and a review of the entire general ledger of the Street Fee accounts for Findinzs fiscal years 2010/2011 to 2015/2016, we noted that$763,460 in Street Fees was expended for the Based upon our analysis and a review of the entire general ledger of expenditures for the Fire construction of the Roundabout. Fee accounts for fiscal years 2010/2011 to 2015/2016 and as illustrated in the table located According to U.S. Department of Transportation15, roundabouts "are often safer, more below, we noted that $934,719 in Fire Fees were utilized to fund debt service related to the efficient, less costly and more aesthetically appealing than conventional intersection construction of Fire Station 3. As Fire Station 3 was required to correct deficiencies in the designs." As such, it is probable that roundabouts would be considered a "higher level of City's levels of service and as Montana Code Annotated ("Code") 7-6-1602 (2)(i) does not service"than traditional interchanges which are the norm in the City. allow impact fees to "correct existing deficiencies." 13 The expenditure of the aforementioned$934,719 appears to be in conflict with the Fire Study and the Act. As DIFs cannot be used to increase the levels of service within a community, it is suggested that the City address the issue of whether the Roundabout represents an Fire Fees increase in the level of service within the City. Used for Fire Station#3 V. Outstanding Information Year Amount 2010-2011 $ 346,726 As of the date of this Report we had not received the following information from the City 2011-2012 $ 150,000 ("Outstanding Information"). 2012-2013 $ 437,993 1. Annual Statements of DIF Account Balances for the last five(5) year fiscal period. 2013-2014 $ - 2. Receipts of DIF collections and supporting documents to verify correct DIF pricing. 2015-2016 $ - TOTAL $ 934,719 It should be noted that if the Outstanding Information had been available for review, our Footnotes: analysis may have varied from that presented herein. We reserve the right to revise this (1)$890,000 in principal and$44,719 in interest. Report for any Outstanding Information that may be provided in the future. As Fire Fees were used to finance Fire Station 3 and as Fire Station 3 and Fire Station 4 VI. General Assumptions and Limiting Conditions were required to be constructed by the City to correct existing deficiencies within the City, DPFG neither expresses nor implies any warranties of its work nor predicts results of the and as the correction of deficiencies are not allowed to be financed by impact fees, it is procedures outlined above. DPFG's work was performed on a"level-of-effort" basis; that is, recommended that the City replenish the Fire DIF account in an amount equal Fire Fees the depth of our analyses and extent of our authentication of the information on which our used to finance Fire Station 3. report was predicated, may be limited in some respects due to the extent and sufficiency of available information, and other factors. Moreover, we did not examine any such E. Streets Development Impact Fee Review information in accordance with generally accepted financial auditing or attestation standards. Back round This Report was based on information that was current as of Augustl9, 2016 and DPFG has Based upon our review of the Streets Development Impact Fee Study dated October 24, 2012 not undertaken any update of its research effort since such date. Because future events and ("Streets Study"), TischlerBise utilized an incremental based method to estimate the street circumstances, many of which are not known as of the date of this study, may affect the DIF ("Street Fee"). estimates contained herein, no warranty or representation is made by DPFG that any of the The Street Study indicates that pursuant to MCA 7-6-1602.(7)(d), "new development may results contained in this Report will actually be achieved. not be held to a higher level of service than existing users, unless there is a mechanism in 14 TishlerBise Streets Development Impact Fee Study,October 24,2012,pg. 11. 12 TishlerBise Fire Development Impact Fee Study, September 23,2012,pg. 12. 15 Federal Highway Administration,a division of the U.S.Department of Transportation(2016,May 31). 13 TishlerBise Fire Development Impact Fee Study,September 23,2012,pg. 1. Roundabouts and Mini Roundabout. Retrieved from http://safety.fhwa.dot.gov/intersection/innovative/roundabouts/ 13 14 Because the analyses are based on estimates and assumptions that are inherently subject to Exhibit A uncertainty and variation depending upon evolving events, we do not represent these as Transaction Sampling results that will be achieved. Based upon the Agreed Upon Procedures, DPFG sampled 236 expenditures representing The professionals at DPFG are not trained legal professionals and as such, we are not approximately 66 percent of the total dollar amount of all of the City's DIF transactions. The providing legal interpretations related to the Act. transactions were broken down into four categories as follows: 1) hard construction costs, 2) consulting and soft costs, 3) credit card processing fees relate to collection costs charged by This Report is qualified in its entirety by, and should be considered in light of, these credit card merchants such as Visa, MasterCard, or Discovery, and 4) error corrections. assumptions, limitations, and conditions. A summary of the DIF transactions reviewed during our Agreed Upon Procedures is illustrated below. Sincerely, Summary of Selected Transactions % Number of % of Category Transactions % of Total Dollar Amount Total Streets Carter T. Froelich CPA Hard Costs 30 35% 3,532,276 88% Managing Principal Consulting/Soft Costs 17 20% 427,806 11% Credit Card 24 28% 51,620 1% CTF/kb Errors 14 16% (11,169) 0% Attachments Subtotal 85 100% $ 4,000,533 100% Water Hard Costs 10 17% 15,008,153 98% Consulting/Soft Costs 18 31% 249,156 2% Credit Card 26 45% 31,325 0% Errors 4 7% - - Subtotal 58 100% $ 15,288,634 100% Waste Water Hard Costs 14 30% 4,622,246 99% Consulting/Soft Costs 3 6% 16,094 0% Credit Card 24 51% 16,960 0% Errors 6 13% - - Subtotal 47 100% $ 4,655,299 100% Fire Hard Costs 14 30% 672,219 95% Consulting/Soft Costs 5 11% 31,473 4% Credit Card 21 46% 5,527 1% Errors 6 13% - 0% Subtotal 46 100% $ 709,219 100% Combined Total Hard Costs 68 29% 23,834,893 97% Consulting/Soft Costs 43 18% 724,529 3% Credit Card 95 40% 105,431 0% Errors 30 13% (11,169) 0% TOTAL 236 100% $ 24,653,685 100% 15 16