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HomeMy WebLinkAboutPolicy Discussion regarding Durston Road and West Babcock Street Special Improvement Districts1 Commission Memorandum REPORT TO: Honorable Mayor and City Commission FROM: Debbie Arkell, Director of Public Services Tim McHarg, Director of Planning and Community Development SUBJECT: Durston Road and West Babcock Street Special Improvement Districts and Payback Districts MEETING DATE: November 7, 2011 AGENDA ITEM TYPE: Policy Discussion RECOMMENDATION: Receive information regarding the history of the Durston Road and West Babcock Street Special Improvement Districts and Payback Districts, and direct staff to continue to assess both payback districts as originally approved, and direct the funds received from the Durston Road and West Babcock Street Payback Districts be deposited to the Street Maintenance Fund, assigned to Street Reconstructions. OR Receive information regarding the history of the Durston Road and West Babcock Street Special Improvement Districts and Payback Districts and chose one or more of the following alternatives. ALTERNATIVES: a) Direct staff to bring back Resolutions to amend the West Babcock Street and Durston Road payback districts to create a homestead exemption as discussed below, with the remaining payback assessed at the time of future development/subdivision of the land. Payback funds received would be deposited to the Street Maintenance Fund, assigned to Street Reconstructions. b) If Alternative (a) is selected, this Alternative will not be applicable. Direct staff to bring back Resolutions to amend the West Babcock Street and Durston Road payback districts to allow the payback on properties that have a future potential for further development to estimate the square footage of right-of-way and exclude that area from payback, with a provision to be included in future Annexation Agreements that recognizes the right-of- way was estimated, and there will be no refund of payback fees if the area was under- estimated. Payback funds received would be deposited to the Street Maintenance Fund, assigned to Street Reconstructions. 126 2 c) If Alternative (a) is selected, this Alternative will not be applicable. Direct staff to bring back Resolutions to amend the West Babcock Street and Durston Road payback districts to allow the deferral of the payback for the estimated future public park land area until the property is further developed or subdivided, with a provision to be included in future Annexation Agreements that recognizes the park area was estimated, and there will be no refund of payback fees if the area was under-estimated. Payback funds received would be deposited to the Street Maintenance Fund, assigned to Street Reconstructions. d) Direct staff to research options for a future policy discussion with the Commission on the potential refund or recalculation of previously paid/charged Durston Road and West Babcock Street paybacks for properties that have already paid into the Districts. e) As determined by the City Commission BACKGROUND: On August 29, 2011, the Commission considered the Christenot Annexation #A-11011. The application requests to annex 6.663 acres adjacent to Durston Road, with a subsequent application requesting R4, Residential High Density District zoning. The purpose of the annexation and zone map amendment is to obtain municipal infrastructure and services in order to develop the property for residential purposes. The applicant does not intend to develop the property, and is annexing and rezoning the property to make it more attractive for sale. Because of this, the following special requests were made by the applicant in conjunction with the annexation application: 1) Defer the payment to the Durston Road payback district for Special Improvement District No. 684 until occupancy of any new construction; 2) Eliminate the requirement for connecting the existing home to sewer and water; 3) Eliminate the levying of all impact fees for the existing dwelling; and 4) Defer the provision of or payment of cash-in-lieu of water rights until occupancy of new construction. Several questions were raised during the public hearing regarding the special requests, and the annexation and zone map amendment public hearings were continued to give staff time to research the issues. Issues 2, 3 and 4 will be reviewed at the continued public hearing for the annexation application. This report provides the history of the creation of the Durston Road and West Babcock Street Special Improvement and Payback Districts and provides answers to questions raised during the Christenot Annexation public hearing. Based on the information provided in this memo, following is staff’s response to specific questions raised during the discussion on the request to defer the payment to the Durston Road Payback District. These responses were made with the knowledge that paybacks began in both districts in 2007, with $51,028.79 collected in the Durston Road payback ($26,939.52 in principal and $24,089.27 in interest), and $17,966.32 collected in the West Babcock Street payback ($9,345.79 in principal and $8,620.53 in interest). Additional information on the creation of the Districts follows this section. 1. Can the payback be deferred until the property is subdivided/developed. Resolution No. 3908, which creates the Durston Road Payback District, states: “Upon annexation, the City shall calculate the amount of the payback, at the assessment rate of $0.186164 127 3 per square foot plus interest costs. The rate to be used in calculating the interest costs shall be the interest rate for the bonds for SID No. 684. If annexation occurs during the term of the Special Improvement District, the City shall also calculate the amount that would have been paid between November 2006 and the date of annexation. That amount shall be payable on the effective date of the annexation; the remaining amount shall be spread over the remainder of the 19 years of SID No. 684.” (emphasis added) Thus, the Resolution requires the initial payback to be paid at annexation. During staff review, a potential “homestead exemption” for properties in the Payback District was discussed. This would seek to remove a (real or perceived) barrier to annexation of properties in the Payback District by changing the method of calculation of the payback amount from a square footage basis to a per unit basis. Since this is not an SID, we are not restricted to the requirement of state law to base the payback amount on the square footage of the property, and the Commission can develop whatever methodology they see fit. However, the intent of the original payback district was to keep the payback district as similar to the SID as possible. Such a change would require the Resolution creating the Payback District to be amended. A “homestead exemption” would acknowledge that the impact from those properties with homes currently on them is based on vehicular trips, which is a function of residential units, not lot size. If there is a single family house on a lot that is 0.75 acre, the existing impact at the time of annexation is no greater than if it is on a 5,000 square foot lot. A very random selection of lots within various subdivisions of the Durston Road SID shows an average residential lot size of 7,517 sq.ft. If a payback is received based on the average residential lot size and the hypothetical 0.75 acre lot never subdivides and remains as a single family unit, we have collected a payment from the property owner as their contribution to the Payback District based on the benefit the single-family residence received from the improvements. We will have captured a stream of income from property taxes and assessments from the 0.75 acre property from the day it annexes, which allows us to fund City services that the residence is consuming anyway. In the case of the Christenot Annexation, under this scenario this 6.6+/- acre parcel would initially be assessed a payback based on a 7,517 sq.ft. lot (i.e. the equivalent lot size based on the one existing residential unit on the property), rather than on the full 6.6 acres. At the time of subdivision, the payback due on the lots created by the subdivision would be assessed based on the size of the lots, thus removing the issue of a payback charge on future right-of-way– see #2 below. Only one property has annexed since the Durston Road SID and Payback Districts were formed, and that was the Lyden property. This property was in the process of annexing when the SID was created, but did not complete the annexation until after creation. Once annexed, the property subdivided into 49 lots. Each of those lots were billed an annual payback charge, two of the parcels paying their balance in full in 2009. Eight parcels have annexed in the West Babcock Payback District. None of the West Babcock properties have further subdivided into additional lots. Those properties have been and continue to receive an annual payback charge based on the gross square footage of the lots. 128 4 The time at which the payback is made can only be changed if the Resolution creating the Payback District is amended. If the Commission elects to create a homestead exemption or any other deferral of payment, staff recommends the deferral apply to both the Durston Road and West Babcock Street payback districts. Future Annexation Agreements should include a provision that recognizes additional paybacks will be due at the time of development/subdivision. 2. Can the area subject to payback exclude public space – parks and streets. Park land. All Special Improvement Districts and payback districts include park lands (park and open space owned by the Homeowners Association and park dedicated to the City). The area within dedicated right-of-way is typically not included in Special Improvement Districts. Staff recommends park areas not be excluded from the payback district. The intent of the Christenot annexation is only to annex the property so it can be sold for future development, so there is no proposed subdivision plan that would determine the park requirement. However, if the Commission elected, the park area could be estimated and the charge deferred until the property is further developed or subdivided. The exact square footage of the public park area would not be known, but the Uniform Development Ordinance currently requires 0.03 acres of park for each residential unit. The expected densities of future development could be estimated based on the zoning of the property, and those densities could be used to calculate the estimated park area. If the Commission elects to defer the payback for future public park land until the property is further subdivided, the Resolutions for both the Durston Road and West Babcock Street payback districts should be amended to provide consistency in the application of the payback districts. Future Annexation Agreements should include a provision that recognizes the park area was estimated, and there will be no refund of payback fees if the required park area was under-estimated. If Alternative (a) is selected, this change will not be applicable. Rights-of-Way (streets). If an SID is created over a parcel of land that has already been subdivided/developed, the SID is not assessed on dedicated rights-of-way. With minor research into the issue, it appears that paybacks to other payback districts have been calculated on the gross square footage of the property when the right-of-way is unknown, and on the net square footage of the property when the right-of-way area is known. If the Commission elects to exclude rights-of-way area from the assessment and there is no plan for subdivision or development of the property (as is the case in the Christenot application), a best-guess estimate of right-of-way area could be determined and deducted from the assessed area. If the Commission elects to exclude right-of-way area from the payback charge, the Resolutions for both the Durston Road and West Babcock Street payback districts should be amended to provide consistency in the application of the payback districts. Future Annexation Agreements should include a provision that recognizes the right-of-way area was estimated, and there will be no refund of payback fees if the required right-of-way area was under-estimated. If Alternative (a) is selected, this change will not be applicable. 129 5 3. If adjustments are made, what might be some unanticipated consequences. Depending on what adjustments are made, the issue of fairness to those who have already paid could be considered. If the Commission changes the methodology for calculating the payback amount by excluding estimated future dedicated rights-of-way, property owners who have already paid into one of these payback districts may expect a refund. Other than the Lyden Annexation, properties that have paid into the districts are small parcels. Many may not have future dedicated right-of-way on their parcels. If the Commission elects to consider a refund or recalculation on these properties, staff recommends the Commission direct staff to research options for future discussion with the Commission. 4. Should the payback funds go to the Street Impact Fee fund? The Resolutions establishing the Durston Road and West Babcock Street Payback Districts state “the funds shall be deposited in the City’s Street Impact Fee Fund or other account as may be established by the City Commission.” The City sought to include county properties that directly benefited from the street improvements in these two Special Improvement Districts. Spreading the cost of the improvements over the entire benefited area reduced the square foot cost of the SID for all property owners. When the county properties were excluded from the SID, the cost to city properties within the district increased. Rather than pass this increase onto city property owners, the City Commission increased the amount of Street Impact Fees used on the project to the maximum amount allowed. This reduced the cost to city property owners, but used Street Impact Fee funds the Commission was planning to use on other projects, and it was determined at that time to return the payback money to the street impact fee fund. Montana State law and the Bozeman Municipal Code both show a preference for keeping Impact Fee Funds separate from other revenues. In this case, the payback is a fee for annexation, not a development impact fee. Depositing the payback money in the Impact Fee Fund could give the appearance that it is some sort of impact fee related to our impact fee program, or that a loan of impact fee funds has been made. Bozeman Municipal Code §2.06.1620 (E) states: “It is not the intent of this division that any moneys collected from any development impact fee and deposited in an impact fee fund ever be co-mingled with moneys from a different impact fee fund or ever be used for a type of facility or equipment different from that for which the fee was paid.” Staff suggests the Commission direct staff to deposit the West Babcock Street and Durston Road payback district funds into the Street Maintenance Fund, assigned to Street Reconstructions. PAYBACK DISTRICT HISTORY: Since Impact Fees were implemented in1996, the Impact Fee Administration Manual includes the following section on Payback: The City provides mechanisms for developers to be reimbursed for water, wastewater and street improvements they make which future developers may connect to. The process is called “payback” and nothing in the Ordinance or this Manual prevents its continuing use. However, the following guidelines are to be used. In any event, payback shall not alter or reduce any Development Impact Fees due. Nor is payback to be, in any way, considered a form of credit for Development Impact Fee purposes. 130 6 As required in the guidelines, payback districts are at the discretion of the City Commission, and the payback process is approved by the City Attorney. There are currently 30 payback districts for payback to either developers or the city for various sewer, water, street, and signal improvements. Terms of the Payback Agreements vary, with most having a 19 year life, some having a 10 year term, and some with no expiration date. The costs recovered are generally the costs of the improvements, less the cost to the specific project. Typically, the city retains 7% of the payback amount for administration fees. In addition to the Durston Road and West Babcock Street payback districts, there are two payback districts that were formed to reimburse the City for infrastructure work completed that had a direct benefit to properties. The City also assumed two payback districts when the city took over ownership of Valley Unit. • Baxter Lane/North 19th Avenue Signal. This project was paid for with Urban Funds, GO Bond money, public services funds, and developer payment (US Postal Service paid $100,000). Twelve parcels are included in the district for a potential payback of $46,750. Some payback money had been deposited in the G.O. Bond Construction Fund. That fund is now closed and any future paybacks will be placed in a “future Baxter Lane Improvements” fund. • Bozeman Solvent Site Water Main. This water main extension project provides municipal water to un-annexed property, as required by the Department of Environmental Quality (DEQ). All expenses were paid for from the wastewater fund. The DEQ’s order stipulated that the City could recover some of these costs by requiring properties that choose to connect to the water main in the future to contribute toward the cost of the water main. Properties that the city is ordered to connect to the water main are not required to make a payback. These funds are deposited in Wastewater Enterprise Fund. • SID No. 621, Far West (Valley Unit) Sewer. This is an SID the City became liable for when the developer of the Valley Unit Subdivision could not pay the SID assessments. Initial payment to the payback was deposited back into the SID Bond Repayment/Sinking Fund. The SID bonds have been paid off, and payback money received after the bond payoff has been deposited into the SID Revolving Fund. • SID No. 622, Valley Unit Water. This is also an SID the City became liable for when the developer of the Valley Unit Subdivision could not pay the SID assessments. Initial payment to the payback was deposited back into the SID Bond Repayment/Sinking Fund. The SID bonds have been paid off, and payback money received after the bond payoff has been deposited into the SID Revolving Fund. CREATION OF WEST BABCOCK STREET AND DURSTON ROAD SPECIAL IMPROVEMENT DISTRICTS (SID) AND PAYBACK DISTRICTS: In July 2004, a majority of the Commission directed staff to proceed with both the Durston Road and West Babcock Street SIDs. WEST BABCOCK STREET SPECIAL IMPROVEMENT DISTRICT (SID) NO. 683: At a November 8, 2004 Commission Work Session, the Commission directed staff to begin work on the West Babcock Street SID. Because un-annexed property would directly benefit from the improvements, the Gallatin County Commission was asked to adopt a Joint Resolution to Create 131 7 an SID for West Babcock Street improvements that would have assessed county properties as well as city properties for the improvements. The County Commission rejected the Joint Resolution stating the county properties are larger than most city lots within the district, and they felt the county property owners were not being fairly assessed in the SID via the area assessment method. County property owners who spoke at the County Commission hearing expressed a desire that the assessment be done on a “per unit” method, which is not an allowed assessment method under state statute. County Commissioner John Vincent indicated he would propose to the 2005 Legislature a change in law to allow other assessment options, such as per unit. This did not occur. At both the County and City Commission hearings on the Resolution of Intent to Create the Joint SID, as well as the neighborhood meeting staff held a few weeks prior to the hearings, it was made clear that if county properties were not included in the SID, the City would create a payback district for the county properties. It was explained that under the payback district, at the time county properties annexed to the city for whatever reason (i.e., development of their land or to connect to city water and/or sewer), they would be required to pay the City the full amount that their property would have been assessed had they been in the SID, plus accumulative interest. This entire payment would be due at the time of annexation, rather than having the option of paying it over 19 years, which is the same option those properties within the SID district have. At that time, 45% of the project cost ($1,853,100) was to be paid from Street Impact Fees. It was estimated the West Babcock Street SID assessment would be $0.19 per square foot if the county properties were included in the district, or $0.24 per square foot if they were not included – a 20% increase. Approximately $200,000 of the 1995 General Obligation Transportation Bond (G.O. Bond) was used to purchase right-of-way for the project. All four options included the creation of a payback district. Four options were discussed with the City Commission at the November 8, 2004 work session: 1. Create the SID with the county properties removed. Keep the same bond amount and Street Impact Fee contribution, and assess all city properties within the district about $0.24 per square foot. Create a payback district for county properties. 2. Same as option 1, and indicate that if County Commissioner Vincent is successful in getting the SID assessment law changed, the City will re-create the SID under a new assessment method, if that method is equally fair to city property owners, and add the county properties into the district, if the county commission would guarantee they would support a joint resolution. Until/if that occurred, all city property within the district would be assessed about $0.24 per square foot. 3. Create the SID with the county properties removed. Remove the cost of right-of-way purchased for the project from the SID, and pay for the right-of-way from the Transportation General Obligation (G.O.) Bond. Increase the Impact Fee contribution to reduce the SID bond amount and keep the city property assessment at $0.19 per square foot. Create a payback district and reimburse the G.O. Bond with the first $245,000 payback money received, and reimburse the Street Impact Fee fund with the remaining payback money received; OR consider the G.O. Bond money funds well spent and just reimburse the Street Impact Fee fund. 132 8 4. Create the SID with county properties out. Leave the cost of right-of-way purchased for the project in the SID. Increase the Impact Fee contribution an additional $374,000. This would reduce the SID bond and assess the city property about $0.19 per square foot. Create a payback district and reimburse the Street Impact Fee fund with the remaining payback money received. During the discussion, City Manager Kukulski noted the only way for someone not in the SID to initially participate in the cost of the improvements is through a “latecomer” (payback) agreement, and all previously created payback agreements trigger the requirement for full payment upfront rather than allowing those costs to be spread over the term of the payback district. The possibility of requiring an upfront payment based on the number of years since the payback district was created, and then allow payments for the remainder of the time, was proposed. This would reduce the financial impediment of annexing while ensuring that properties in the district that directly benefit from the improvements are paying a fair and equal share, and is how the payback district was created. A majority of the commission voiced support for Option 3, with consideration that the G.O. Bond money was well spent, and payback monies being used to reimburse the street impact fee fund. On December 20, 2004, the Resolution of Intent to Create the SID No. 683, Roadway Improvements to West Babcock Street was approved by the Commission. A majority of the Commission voted to increase the amount of street impact fees used for the project to 71%, the maximum amount deemed eligible for the project. In addition, water and sewer impact fees were to be used to the greatest extent possible, the discretionary 5-percent district reserve account was not to be created, and properties in the Ferguson Meadows Subdivision were to be excluded from the SID because they were subject to another SID. On January 18, 2005, the Resolution Creating SID No. 683 was passed with the December 20, 2004 changes, resulting in a $0.125927 per square foot assessment. At creation, the Special Improvement District assessed 912 parcels for the recovery of $1,372,000 (plus interest). WEST BABCOCK STREET PAYBACK DISTRICT: On January 7, 2005, a public meeting was held regarding the Resolution No. 3772 Creating a Payback District for Special Improvement District No. 683, improvements to West Babcock Street. County property owners within the proposed payback district were mailed a memo noting the city commission hearing date on the proposed payback district and a copy of the proposed Resolution regarding creation of the Payback District. The February 7, 2005 Commission meeting minutes state: “The payback district would assess the county properties, upon their annexation, at the same rate the city properties are being assessed”. Resolution No. 3772, Creating a Payback District for Special Improvement District No. 683, was adopted by a vote of 5-0. The Resolution allows property owners who annex within 19 years from November 2005 to pay the amount that would have been paid between November 2005 and the date of annexation of their property, with the remainder to be spread out over the remainder of the 19 years of the SID. The assessment rate was set at $0.125927 per square foot, plus interest; the same assessment rate as SID No. 683. The Resolution stipulates that “All monies paid to the City under this payback district shall be 133 9 deposited in the City’s Street Impact Fee Fund or other account as may be established by the City Commission.” At creation, the Payback District applied to 80 parcels, with a total estimated payback of $266,806.31 (plus interest). $17,966.32 (includes interest) has been received from the payback district, and these funds have been deposited into the Street Impact Fee fund. DURSTON ROAD SPECIAL IMPROVEMENT DISTRICT (SID) NO. 684: Although not created until April 2006, work on the Durston Road SID began in 2000. Four developers whose properties had to access Durston Road contributed money toward the pre-design of the street improvements as they were aware that further development would likely not be approved until the road was improved. As noted above, the Commission gave staff direction to proceed with creating the District in 2004. The creation of the Durston Road SID and payback district followed on the heels of the West Babcock Street SID and payback district, and a very similar process was followed. In addition to public hearings, three neighborhood meetings were held to discuss a Joint City and County SID, the proposed design of the Durston Road improvements, and county property owner participation via a payback district. On October 5, 2005, the Gallatin County Commission voted not to adopt a Resolution to Create a Joint SID. This increased the cost of the assessment from $0.20/sq.ft. to $0.25/sq.ft. On November 21, 2005, a lengthy public hearing for Resolution 3864 Intent to Create SID No. 684 was held and the Resolution passed unanimously by the City Commission, with direction given to staff to bring back a payback agreement. On December 19, 2005, Resolution No. 3881 Creating SID 684 was passed. The project cost of $5,668,020 was less than estimated, with $3,590,240 to be funded with Street Impact Fees, $343,770 in Wastewater Impact Fees, and $146,010 in Water Impact Fees. This left a balance of $1,406,052 for the SID bond amount. The assessment rate is $$0.186164 per square foot. At creation, the Special Improvement District assessed 1008 parcels, of for the recovery of $1,406,052 (plus interest). At creation, the Special Improvement District assessed 1008 parcels for the recovery of $1,406,052 (plus interest). DURSTON ROAD PAYBACK DISTRICT: On April 24, 2006, a public meeting was held regarding the Resolution No. 3908 Creating a Payback District for Special Improvement District No. 684, improvements to Durston Road. The Resolution passed unanimously. Similar to the West Babcock Street Payback District, this payback district charges the county properties upon their annexation at the same rate the city properties in the Special Improvement District are being assessed. The Resolution allows property owners who annex within 19 years from November 2006 to pay the amount that would have been paid between November 2006 and the date of annexation of their property, with the remainder to be spread out over the remainder of the 19 years of the SID. The assessment rate of $0.186164 per square foot, plus interest, is the same assessment rate as SID No. 683. The Resolution stipulates that “All monies paid to the 134 10 City under this payback district shall be deposited in the City’s Street Impact Fee Fund or other account as may be established by the City Commission.” At creation, the Payback District applied to 58 parcels, with a total estimated payback of $396,602.59 (plus interest). $51,028.79 (includes interest) has been received from the payback district, and these funds have been deposited into the Street Impact Fee fund. UNRESOLVED ISSUES: This policy discussion is a sub-set of a much broader and complex discussion on the City’s policies regarding wholly surrounded unannexed enclaves. Staff recognizes that the City’s annexation, land use, infrastructure, impact fee, special district, and public services policies have interconnected impacts on the potential annexation of these enclave properties. Staff would support a process that would evaluate these interconnected policies to determine how they might be modified to encourage annexation. However, because of the complexity of such a broader annexation policy discussion, Staff believes that is beyond the scope of the issues directly raised by the Christenot annexation application and the Durston and Babcock SID/Payback Districts. Therefore, Staff recommends a narrow focus for this policy discussion, with an intentional limitation to those issues directly raised by the Christenot annexation application and the Durston and Babcock SID/Payback Districts. If the Commission would like to have a broader annexation policy discussion, Staff recommends that this be considered as a potential Commission Work Plan item for 2012. FISCAL EFFECTS: If nothing in our current practice changes, the portion of the G.O. Bond and the SIDs will be paid off in full at their appointed times. The amount of funds received from the payback districts is difficult to anticipate. If the paybacks sunset in their 19th years as currently anticipated, and with the downturn in development, we likely will not see much if any in the way of annexation of county property within the payback districts. Most of these properties are small and will be difficult and expensive to develop. The Commission could act to extend the payback districts until we recapture all of those funds, although this was never anticipated or discussed when the payback districts were created. Attachments: None Report compiled on: October 28, 2011 135