HomeMy WebLinkAboutResolution 4422 Wastewater impact fee study1
Commission Memorandum
REPORT TO: Honorable Mayor and City Commission
FROM: Chris Saunders
SUBJECT: Commission Resolution 4422 adopting the update to the Wastewater
impact fee study to establish methodology, and document required information to conform to
statute, and determine the generalized average cost per unit of service.
MEETING DATE: December 10, 2012
AGENDA ITEM TYPE: Action
RECOMMENDATION: Adopt Commission Resolution 4422 adopting the updated
wastewater impact fee study [also known as a service area report] as presented.
SUGGESTED MOTION: Having received and considered the updated study for wastewater
impact fees, the recommendation from the impact fee advisory committee, and having heard and
considered public comment I move to approve Commission Resolution 4422 adopting the
September 23, 2012 draft of the Wastewater Impact Fee Study.
BACKGROUND: The City operates a municipal wastewater utility comprised of a single
treatment plant and 205 miles of sewer piping. The utility requires funding for maintenance and
operations to serve existing users, and also funding to expand the system to serve future users.
Funding for operations and maintenance comes primarily from the monthly service charges
assessed to system customers. This includes funding for both daily operations such as wages and supplies and for the replacement of existing capital goods. The City expends approximately 7.5
million dollars per year operating the wastewater system. Capital goods are generally defined as
having a service life in excess of 10 years and are physical items such as pipes, treatment and
collection buildings, and vehicles. The City dedicates approximately one million dollars per year
from monthly fees to replace and maintain capital for wastewater collection piping and significant additional annual funding to replace and maintain the wastewater treatment plants.
Capital expansion of the system is achieved by combined funding sources such as impact fees,
development project related installations of piping, and applicable grants which occur
infrequently. All these funding sources must work together to provide the reliable and adequate service needed for a healthy community. Coordination is provided through the long range facility
plan and the annual capital improvement programming system as well as the operational
oversight of the staff and Commission. Costs for treatment facilities are heavily affected by
regulations imposed by the state and federal governments to protect water quality in the East
Gallatin River and other waters.
197
2
This memo discusses one element of the overall funding structure for the wastewater system,
impact fees. Bozeman initially adopted impact fees in 1996. Most recently the fee studies were
updated in 2007. The present fee study began in 2011. Impact fees have helped the City provide
needed services during high, moderate, and slow growth periods. The memo is structured in sections identified by letter. Each section addresses an individual topic. The majority of the sections are focused on the content of the new fee study, the presentation of information that
occurred on October 8th, and related questions. Section F identifies questions and issues that will
be addressed with implementation. Many of these items interrelate to other issues, programs, and
standards. These interrelationships are often complex and on-going. These items do not all need to be resolved prior to acceptance and adoption of the fee studies.
The sections are:
A. Responses to questions from October 8th
B. Summary History C. Process D. Common Study Elements and Changes
E. Wastewater specific items
F. Issues for Future Discussion and Implementation
Sections: A. Question from October 8th:
The only question from the Commission on October 8th was relating to the frequency of
the update cycle. This is discussed under Section F, page 8 since it applies to all of the
impact fees.
B. Summary History: The City funds its water, sewer, fire/EMS, and transportation systems
with multiple funding sources including impact fees. The City of Bozeman initially
adopted impact fees in 1996. Fees were initially adopted at a fraction of the calculated
cost of service to provide a transition period. The percentage of the fees collected has varied by time and type of fee. It is necessary from time to time to update the study which documents and sets the upper limit for the unit costs for each type of impact fee.
The City adopted updates to the various facility plans which provide much of the base
information for the impact fees for transportation in 2001 and 2009, fire in 2006, and
both wastewater and water in 2007. The City retained consultants in 2006 to update the fee studies. The four fees were updated and adopted over the following 14 months.
The City has adopted a three year cycle to update the impact fee studies and a five year
cycle to evaluate and if needed update the facility plans. In 2011, the City began the
consultant selection process to again update the impact fee studies. TischlerBise was
selected as the consultant for this update cycle with the contract being signed in June 2011.
C. Process: The City conducted a request for qualifications followed by a request for
proposal process to select a consultant to assist the City in updating the four fees. A
contract with the selected consultant, TischlerBise, was completed on June 29, 2011.
Since that time, the consultant has been collecting and reviewing data, preparing analysis and draft reports, and meeting with Staff and the Impact Fee Advisory Committee
(IFAC). The IFAC is the body required by statute and formed by local resolution to
advise the City Commission relating to impact fees.
198
3
The IFAC conducted public hearings on August 16th and September 13th to hear input
from members of the public on the draft impact fee studies. After conducting the public
hearings the IFAC voted on motions to recommend approval of the individual fee studies.
The Committee recommended favorably on all four studies having found that the studies were consistent with the requirements of state law regarding impact fees. The minutes of the IFAC hearings are attached and provide greater detail on their actions. Minutes of all
of the IFAC meetings are available through the Planning Department.
On October 8th the City Commission received the reports and heard a presentation from
TischlerBise regarding the reports. No action on the studies was taken. The meeting was for receiving information, hearing from the public, and formulating questions from the Commission to be answered at a future meeting when all Commissioners are present.
The Commission set November 26th for follow up action on the water study. This action
was moved to December 10th. The Commission passed Ordinance 1843 making structural
changes to the impact fee ordinance language which will be in effect on December 5th. These changes specify that adoption of the new water impact fee study is by resolution. A
draft resolution has been prepared for Commission action should the Commission wish to
take action on December 10th.
A resolution of the Commission can be effective immediately. Staff recommends a delay
in the effective date of the implementing resolution in order for implementation procedures to be set up and information to be provided to the public. Staff recommends
the effective date to be January 1, 2013 and the draft resolution includes that effective
date.
D. Common Study Elements and Changes:
Each fee is the subject of an independent study as each fee is legally independent of the others and relies on different data and demand characteristics. The introductory material
in each study is very similar. There are three main sections of each report: 1) Introduction
to impact fees, 2) Impact fee calculations for each fee type, and 3) Implementation and
administration. The second section of the report contains the data sources and analysis
and presents the resulting fee calculation broken into cost per demand unit. This section will be most interesting to most people.
Several significant changes are occurring with this round of impact fee updates. Data was
available on home sizes from the MT Dept. of Revenue for the first time. This in
conjunction with other data sets enabled the consultants to perform analysis to document
certain demands for service by home size. Please see the Setting the Stage document for this analysis on home size and occupancy. They were then able to expand on this analysis
with each individual fee study for those elements unique to that fee type as documented
in Appendix A of each study.
All four of the fee types now base residential fees on expected occupancy per size of
home. The same home size range was used for all four fees with a lower end of 1,400 square feet and an upper end of 3,000. The range is broken into 200 square foot
increments so movement between increments will result in a small impact fee charge.
The consultant had analyzed the home range originally for detached and attached home
styles. After discussing the results with the IFAC it was decided to consolidate the two as
there was a substantial amount of overlap between the size increments. There is also a
199
4
special residential category for group living which is distinguished by population rather
than dwelling area. The occupancy level per home in the studies reflects the population
spread across all housing units constructed from 1990 to 2010. This represents demand at
any given point in time and accounts for vacancies without being tied to a particular vacancy rate. As a result the occupancy per home used in the calculation is slightly less than the actual number of residents expected to live in an occupied dwelling.
These are averages over large samples of the City housing stock. Therefore, some homes
will have different demands above or below the average at any given point in time.
However, the overall system should equalize to the average. This occupancy approach has the effect of recognizing the differences which come from smaller and larger homes and reducing fees on smaller units which generate less demand. This appears consistent
with the City’s overall encouragement for land efficient development.
Because of this change all residential fees are on home size. Attached and detached
homes are no longer separate categories. Affordable housing distinctions to individual categories are also removed since the primary difference was also related to size of homes.
Several examples of how these different approaches to the fee apply to development are
attached. There are both residential and non-residential examples for different intensities
and types of development as well as for the downtown area which is subject to special standards.
E. Wastewater specific study elements and changes
Fee Components: 1) The draft study divides the wastewater impact fee into two explicit
parts; treatment plant capacity and collection (piping) capacity. This is shown in figure 12
of the report. Both parts were included as part of the cost calculations in the previous fee studies but were consolidated into a single charge based on the size of the water meter.
The 2012 study keeps them separated. The treatment capacity portion is based on either
the size of the home or the meter serving the non-residential property. The collection
capacity portion is based on the land area of the parcel and the concept that larger parcels
require a greater amount of distribution piping to span their perimeter and collect wastewater. This has been expressed as cost per acre for service. The dollar cost for the
second portion will vary for each project depending on the size of the lot. This area based
approach has the effect of recognizing the differences in distribution pipe length which
come from smaller and larger parcels and reducing fees on smaller units which generate
less demand. This is consistent with the City’s overall encouragement for land efficient development and increases proportionality of cost to impact. This will apply to both
residential and non-residential uses. This split will require slightly more administrative
effort to track the different revenue components of the fee.
Residential: Current practice in Bozeman is to charge wastewater impact fees on the basis
of the size of the water meter serving the property. As noted above, the proposed fee structure would replace that approach to have a distinction based on the size of the home
by 200 sq ft increments and the size of the parcel.
The present approach using meter sizing has given builders price motivation to use the
smallest possible meter size which can cause problems with water pressure and meter
wear and tear. It also has made the cost per multi-household dwelling less predictable as the combination of plumbing fixtures, water pressure at the main, and many other factors
200
5
influence the size of meter needed. A size per dwelling approach will increase
predictability for the number of homes. In the event of home additions, the fractional
difference between the old and new sizes will be charged. In the event of a new dwelling
the amount due from a home of the new size will be charged even if the home previously had service. Basing the distribution component on parcel size will be predictable by size but potentially different by project.
The change in approach to home size also allows the City to pro-actively address the
issue of residential fire sprinklers which piggyback on the metered domestic service line.
Presently there is a question of when or if such a requirement may be implemented in the building codes. Some users have installed them voluntarily. By decoupling the impact fee from the meter size an increase in impact fee resulting from increased meter size to
support the possible surge demand from the fire sprinkler but which doesn’t reflect daily
water demand can be avoided. Dedicated fire sprinkler lines for non-residential uses or
large apartment complexes are not charged impact fees and are not affected by this change. Since the wastewater impact fee has been tied to the size of the water meter, changes in water meter size also had effects on the wastewater impact fee. The change to
a home size/occupancy derived fee will separate the wastewater impact fee issue from the
question of residential fire sprinklers.
Non-Residential: The new report recommends continuing to use the meter size for non-residential as there is not adequate data to show a correlation to building size and
wastewater treatment service demand and there is a greater diversity of user types.
Consumption Rates: The analysis prepared for the water and sewer impact fees both
looked at the demand patterns for homes constructed in the past 20 years rather than the
entire city as being most representative of likely demand of new construction. This is a change from the prior studies. The trend in wastewater generation indicates that the efficiency efforts the City has been undertaking such as the toilet trade out program are
reducing flows into the treatment plant and the collection system. These improved
efficiencies allow the same infrastructure to serve a greater number of users.
Special Cases: There are certain special cases relating to the change in how the piping component (collection system) is handled which must also be addressed and are
described below. The capacity component will continue to be handled as it is today.
These items will be included in future updates to the administrative manual for impact
fees so that these special cases are applied consistently.
a. Infill sites not previously developed: A property that has not had water/sewer service during the time when impact fees were in place (March 26, 1996 to now). These
should pay the capacity and the distribution/collection charge as they are completely
new demand and will require additional capacity in both parts of the
treatment/distribution system to serve them. As the system is a whole, the funds can
be legitimately used to extend the major items which will benefit them.
b. Redevelopment/further development of sites which had service: These have paid for
needed service capacity expansion in fees paid earlier, either impact or monthly. The
calculations for impact fees do not require exacting precision and usually must be
generalized due to their future oriented nature. The City also acts to create additional
capacity in its collection systems as part of the regular and on-going maintenance of
201
6
the system, especially in the older areas of the City. An example of this is the
replacement of an older 6 inch main with a new one for maintenance reasons with the
new pipe meeting the new minimum dimensional standard of 8 inches. The City
conducts these types of replacements annually and has a structured maintenance program for such work. These two factors together provide some flexibility in considering how to treat redevelopment of a site.
The City has adopted a standard for the provision of water rights with new
development. This is located in Section 38.23.180. Unlike impact fees which come at
the time of building permits, the water rights standard is often met during the subdivision or site development process. If a project creates additional demand that meets or exceeds an additional acre-foot of water they have to mitigate this additional
demand for service. In Bozeman an acre-foot generally provides for about 3 homes
over the course of a year. To keep consistency and to allow for some incremental
changes within the developed area the need to pay the collection component related charges should be linked to this same increase in consumption trigger. This recognizes the variability inherent in averaging and the incremental capacity
improvements from maintenance work. If you don’t need an additional acre foot then
there will be no distribution /collection area fee. Costs would be charged for the
additional dwelling’s area or meter size per normal to cover the capacity component.
c. Phased multi-building development: It would be inappropriate to charge each part of
a multi-unit complex the full fee for the collection systems of the entire site.
Therefore, the costs will be prorated. Example: A site plan on 2 acres with ten
duplexes is proposed. As each duplex comes in for building permit they would be
charged 1/10th of the overall collection cost component for the project. This may be infill or Greenfield. An alternative approach would be to charge the first of the units for the entire distribution component and then only the home/meter size charge to the
remaining units. Staff recommends the first option.
d. Parks: The area of the city dedicated to public parks has been removed from the
calculation for the future area served. This only applies to the collection piping component. Development within the park will still directly pay the plant capacity
costs attributable to the meter size installed.
F. Issues for Future/Additional Discussion related to Wastewater. Several of these items are
generally applicable to all impact fees and are repeated with each individual Commission
cover memo. Notes on action are shown at the end of each segment in italic text.
Consumption Rates: The analysis prepared for the water and sewer impact fees both
looked at the demand patterns for homes constructed in the past 20 years as being most
representative of likely demand of new construction. One interesting trend discovered
was that although both average water and sewer use has been decreasing over time the
consumption of water in new construction was higher than the city-wide average and has been trending downwards at a much slower pace than sewer usage over time. This
diverging consumption trend is counter intuitive to the more prevalent use of water
conserving fixtures in new construction and likely points to a greater percentage of use
for outside uses. This has an impact on the amount of the fee in the present study and
provides interesting opportunities to consider policy changes to reduce water consumption. No action is required with the impact fee program. This is information
applicable to other programs or City activities.
202
7
Water Sense: During the evaluation of water consumption at the IFAC meetings the
possibility of having a different fee for homes with superior water conservation measures
was discussed. This came before the analysis discussed above which showed an
unexpected water utilization trend in new construction. As the available data didn’t presently support such a distinct fee it did not move forward. However, the US EPA does
have a water conservation program called Water Sense which provides a metric and
procedure to pursue high efficiency water use certification. Since water intake is related
to wastewater generation improving efficiency in water use may also benefit wastewater
matters. This was seen as a starting point for this discussion. The IFAC agreed that even though it wasn’t ready for implementation in this fee study the idea should carry forward
for future analysis. The greatest questions on this subject revolved around verification
and implementation. No action is required related to the study on this item. An
implementation of this program would require new procedures. This is likely a large project that would require Commission prioritization and dedication of resources. It is not expected that ordinance changes would be required.
Generally Applicable Items
Capital Improvements Program (CIP): One of the responsibilities of the IFAC is to advise
the Commission regarding the spending of impact fees. This is fit into the regular CIP
document which the City Commission considers and adopts annually. The CIP covers a rolling six year window with the current budget year and five future years. A point of
discussion at the IFAC is the relative merits of how to list projects on the CIP.
Three options were discussed. First, having a short list of high priority projects which are
all funded and leave no material uncommitted funds and no unfunded projects on the list.
Second, have a lengthy list of projects which are impact fee eligible but which collectively are beyond the five year financial reach of the program in order to communicate possible options for the future. Third, have a short list of high priority
funded projects and deliberately leave an uncommitted balance in the program to enable
the City or individual developers to ask for partner funding as opportunities arise. No
action is required related to the study on this item. This is more of a preference for the Commission to express as it considers the CIP update.
Credit management: One of the public comments during the public hearings before the
FIAC was related to how credits are managed. This is related to the CIP item above. The
current approach used by the City requires CIP listing prior to work being eligible for
funding with impact fees either as a city project or as a developer request. The request was to allow as credit projects all qualifying work whether or not CIP listed and would
establish the value of credits available based on the CIP listed values. Staff has
considered this option and believes it would cause several difficulties in managing the
impact fee funds and in showing that fees were expended appropriately. No action is
required related to the study on this item. This change would require an ordinance.
Data tracking: The revised approaches for assessing the impact fees by home size and
water and sewer by lot size will require additional data tracking. Coordination among
departments will be needed to ensure consistent collection and retention of the needed
information. It is believed that this can be accomplished with existing software tools. No action is required related to the study on this item.
203
8
Facility Plan and Impact Fee Study Updates: As noted above, the City relies upon its
facility plans as essential information in preparing and administering the impact fee
program. The City has completed several major projects in the various plans and in some
cases the documents were prepared several years ago. The City’s ordinance requires a periodic review, and if needed update, to these foundation documents. It is likely that
updates to the water, wastewater, and fire facility plans will be needed before the next
impact fee update. These are major endeavors and use a lot of staff and commission time
and financial resources. It is advisable to begin this process soon so as to be completed
before the next required study update.
The City has established a schedule of updates in Section 2.06.1700.J, BMC. This schedule was put in place at a time of high growth rates and when the impact fee program
was new. The impact fee and facility plan updates require significant investments of
money, staff and Commission time, and time from the public. It is recommended to
consider the possibility to lengthen the cycle time. Recent inquiry to Missoula shows that they don’t have a fixed update cycle for their impact fees studies but do so about every five years. There are advantages to coordinating the processes to review and update the
monthly service rates and the impact fee study updates. No action is required related to
the study on this item. Changes to the update schedule requirement require an ordinance. No action on this item is required before adopting the updated fee study.
Deferred payment: A member of the IFAC raised the question of timing of the required
payment of impact fees. Presently the fees are due at issuance of building permit or
connection to water or sewer systems. The Commission has considered this issue several
times before and concluded the benefits were not adequate to justify the change. It is
important to remember in discussing this topic that the amount of immediate impact varies among the different fees. The individual fees may be treated differently for the
manner in which they are collected although this would add complexity. An additional
matter is whether there is a minimum threshold of cost below which fees would not be
deferred. Additional discussion on this item is presented under the economic
development segment below. A change of timing for required payment of fees would require an ordinance.
Economic Development Considerations
How does the implementation of a revised impact fee methodology synchronize with the
Commission’s established economic development goals, priorities and policy initiatives?
Specifically, how will the application of a new impact fee methodology impact the implementation of the adopted economic development plan?
It is important to discuss if, and how the implementation of a new impact fee
methodology will complement, or challenge, other guiding economic development
principles and priorities of the Bozeman City Commission. For context please refer to
the City’s broad economic development policy direction shown in Sections 1 – 4 below.
Section 1.
The adopted 2012 – 2013 Work-Plan includes the following priorities:
1. Implement the adopted economic development plan, integrating
economic development principles throughout the organization;
204
9
2. Adopt comprehensive strategies and financial plans to address
deferred maintenance;
3. Improve parks and recreation amenities;
4. Complete an integrated water resources plan;
5. Create a storm-water utility;
6. Enhance downtown development opportunities;
7. Support Gallatin College programs;
8. Implementation of the community climate action plan; and
9. Develop a legislative agenda.
Section 2.
In 2009 the Bozeman City Commission adopted its first economic development plan.
Since adoption, the City’s Economic Development Council and city staff implement
programs, practices and partnerships that add value to the City’s economic development efforts and builds capacity to serve more businesses in the area. The tenets of the economic development plan are:
1. Support the expansion and retention of existing businesses and
economic clusters that will continue to strengthen and diversify the
economy and create higher paying jobs in Bozeman.
2. Maintain and upgrade infrastructure to support current and future needs of business.
3. Support education and workforce development initiatives to
provide Bozeman with the qualified workers to meet the needs of
business.
4. Leverage local, state and federal economic development resources to enhance economic growth in Bozeman.
5. Create a more collaborative and effective working partnership
between the business community and the City of Bozeman and
effectively manage the City of Bozeman’s regulatory environment to accomplish goals without hindering business expansion and economic growth.
6. Maintain the high quality of life that is considered an important
asset to the business community.
Section 3.
Additionally, from the adopted plan, the EDC delineated the following priorities
and recommendations:
1. Commitment to a business-friendly process with a focus on retention and expansion of existing local businesses.
205
10
2. Stabilize existing local incubators and create a full service business
incubator program to achieve a healthy business ecosystem.
3. Core Services and Infrastructure.
4. Identification and Establishment of Business Incentives.
5. Workforce Development.
Section 4.
The City of Bozeman’s economic development goals are rooted in a job creation and
industry diversification strategy adopted in the 2009 Economic Development Plan. The
City has determined that supporting the start-up, growth or relocation of the following high growth potential sectors will create high paying jobs and add diversity to the local economy:
1. Manufacturing and fabrication;
2. Bio-Sciences and Bio-Technology;
3. Hi-Technology ;
4. Photonics; and
5. the Outdoor industry.
Support for high growth potential sectors includes creating partnerships where others can
take the lead in areas of workforce training, appropriate incentives, business resources.
The City has taken the lead on streamlining the development review process and facilitating economic growth by strengthening and creating partnerships and matching businesses with resources.
Impact Fees and Economic Development
New development relies upon the availability of infrastructure to move forward in a
timely manner. Delay can be a strong disincentive to investments. Impact fees help provide infrastructure in a timely manner thereby avoiding delays. Impact fees help
provide predictability in short and long term cost structures to business by identifying
costs up front and avoiding unplanned large tax or user fee increases in the future.
Different users are more or less sensitive to the known and upfront costs compared to
more predictable long term costs over the average business lifecycle. The impact fee ordinance makes allowance for the City to provide financial support to offset the effects
of impact fees on desired development. The City can take advantage of this to focus
efforts on desired economic sectors. The change in the transportation impact fee to
consolidate non-residential uses for initial use and reuse should be supportive of reuse
and redevelopment in existing facilities.
A well integrated policy and regulatory environment is advantageous for both the public and private entities who work with the regulations. The effect of the new impact fee
methodology on the adopted work plan and implementation of the City’s Economic
Development Plan should be considered in the overall impact fee implementation
discussion.
206
11
Ideally, in its’ consideration of the implementation of an impact fee policy, the
Commission discuss the synchronization of the impact fee program with the
Commission’s established economic development goals, priorities and policy initiatives.
The Economic Development Council (EDC) discussed the issue of impact fees on numerous occasions, hosting various experts on the issue. Through their staff liaison, the
EDC submitted the following discussion points for Commission consideration:
1. Prepare materials to educate potential investors, business owners and
entrepreneurs, on the short and long-term investor-advantages of charging impact
fees when compared to other fee recovery solutions;
2. Identify specific sectors, job creating, industry diversifying sectors with high
growth potential, for deferral of commercial impact fees, or a percentage thereof,
until the application for Certificate of Occupancy.
i. Manufacturing and fabrication (industrial production, in which raw
materials are transformed into finished goods on a large scale
which may include but are not limited to textiles, outdoor goods
and products, bio-science and technology products and photonics)
ii. Bio-Science and Bio-Technology (including but not limited to
technological applications that use biological systems, living
organisms or derivatives thereof, to make or modify products or
processes for specific uses)
iii. High-Technology (including but not limited to aerospace, artificial
intelligence, information technology, electrical engineering,
information systems, nanotechnology, nuclear physics, robotics
and telecommunications)
iv. Photonics (including but not limited to laser manufacturing,
advanced measuring devices, biological and chemical sensing,
medical diagnostics and therapy, display technology, and optical
computing)
v. the Outdoor industry (active outdoor recreation businesses
including but not limited to manufacturers, distributors, suppliers,
marketers, sales representatives and retailers in the industry)
3. Commit to training and educating employees that interface with investors and
developers because there is value in appreciating that the City competes locally,
regionally and nationally to attract new and retain existing business. City
attitudes, customer service, professionalism and shared values for business
attraction and retention each play a part in the business decision. Economic
development is everyone’s business.
207
12
4. Regularly compare the City’s development fee schedule against the development
fee schedules of other communities;
5. Identify specific sectors (see sector details in 2. i – iv above) for targeted impact
fee assistance.
6. Work deliberately to make raw land developable as appropriate (with respect to
subdividing and infrastructure development);
Options to address EDC comments:
Comment 2: There are several options for changing the time fees are due. Changes in payment
timing should likely be made uniformly across all users. Careful legal review would be needed to
restrict procedural benefits to only some users.
1) The time of payment was originally set prior to permit issuance as it provides the most surety of payment prior to impacts on the systems beginning. This timing of payment is the current
standard. The city has the funds in hand and can therefore have the greatest ability to carry
forward construction of necessary improvements to meet demands for service. Payment prior
to permit means the fee is paid early in the process. It a project is abandoned after permit
issuance and before construction begins fees can be refunded as no impact has yet occurred. Early payment of a fee requires greater financial commitment by the private party earlier in
the construction process but provides the least risk to the City.
2) The next most reliable time would be prior to issuance of an occupancy permit. An
occupancy permit is certification by the Building Division that the requirements of the
building code have been met and the building is ready for safe use. Not all types of construction which generate new service demand require an occupancy permit and would
therefore need some exception to this timing requirement to ensure fee payment.
The positive argument for this change is that it does not require as much financial
commitment as early in the process which may reduce interest paid on a loan or simplify
financing for certain owner constructed homes. A review of a recent sample of single detached homes showed a time range between permit issuance and certificate of occupancy
of 53-204 days with an average of 132 days. Deferral to occupancy could then possibly
provide an opportunity to avoid interest charges on $9,455 for a median size home and lot
assuming 100% collection of cost of service. Commercial construction is more variable in
demand and is expected to take longer. Therefore no commercial example is provided. As a single point in time payment the occupancy permit approach is less complicated than a
distributed payment.
The negative argument is that it is more likely that a project will reach completion and have
exhausted its available budget and not have the funds to pay the impact fee. The City would
then be in the position of having to deny occupancy of a completed building after significant expense. It may be possible to help mitigate this risk by requiring provision of an escrow of
funds to ensure the fees are held and available although not paid immediately. This would
require development of appropriate procedures both internally and with the lending
institutions. Also, by deferring availability of funds it adds some complexity in planning for
expenditure of the funds. This also has potential for additional stress on Building Division
208
13
personnel who must handle the issuance of the certificates of occupancy and who are the
receiving point for the impact fee payments.
3) A third option is payment over a period of time. Kalispell has set up this process but also
requires payment of any outstanding amounts upon sale of the property. The sale requirement would make this approach less beneficial for many residential projects which sell shortly after completion. Selection of duration of the time period would be up to the City. Use of the
approach requires several steps and has some direct costs for recording documents at the
Clerk and Recorder’s office.
The positive argument for this change is the deferral of costs which reduces the upfront expenses of development. However, it is important to note that this does not reduce the total expenses and if interest on the deferral is charged as Kallispell does may actually increase the
end cost.
The negative argument is that significant additional legal and procedural complexity is added
for an undependable amount of benefit. The additional complexity adds costs to the process of collecting and administering the impact fee program. There is no judicial sanction for this approach at this time in Montana. Contact with Kalispell staff indicates that the option is
infrequently used. Staff does not recommend this approach. A change of timing for required
payment of fees would require an ordinance.
Comment 4: Comparison to Other Communities: Settlement and development of the Gallatin Valley has been actively ongoing since the 1860’s. People have chosen to settle in many different locations for many different reasons and have created several villages, towns,
municipalities and other settlements in our area. These decisions came long before any
discussion of impact fees. Location of resources, costs, service quality, timing of land
availability, and many other factors affect the decision to choose a particular site. At this time three of the four municipalities in the Gallatin Valley have adopted impact fees. A comparison sheet is attached showing Bozeman, Belgrade, and Manhattan; Missoula is also included. This
sheet shows impact fee costs for various types of development. Please note that the orange
highlight shows those costs which are highest in the comparison. Some communities have
reduced the percentage of the fee they collect. The cost comparisons for other communities shows actual collected amounts. The Bozeman column shows actual cost of service as determined by the new studies and does not reflect any reductions. Conversation with the other
communities indicates that they do not have a funding program in place to make up the
uncollected portion of the impact fees.
A second comparison sheet is provided which summarizes costs from three types of non-residential uses: manufacturing, retail, and office. This comparison is based on costs per thousand square feet for sample projects applying the proposed methodology of the four fee
update studies. Please note that for purposes of simplifying the comparisons the actual project
costs are divided to be presented on a cost per thousand square feet although not all fees are
assessed in that manner. The referenced 271 city averages are from the attached impact fee survey by Duncan. Please note the fact that differences in revenue options affects reliance upon any particular funding source. There are a wide range of types of fees and costs of fees imposed
as shown in that study.
A set of four reports produced by the Montana Building Industry Association is also provided.
This set tracks single detached home construction statewide in counties and larger cities. The
209
14
report set is provided on a quarterly basis. The second quarter (April-June) is provided for 2009-
2012. As shown in this data set, even during the significant downturn of the past few years and
as the economic recovery has begun Bozeman has remained more active with construction than
most locations in the state.
Not all fees charged to expand system capacity are called impact fees. They are also called system development charges or system investment fees among other names. These fees can be
charged by water and sewer utility providers under a different statutory authority than the impact
fee program relies upon. Three examples of this are those charged by the Rae Water and Sewer
district west of Bozeman, Helena, and by the City of Billings. Copies of the fee amounts they charge are attached. All these use the equivalent of meter size to determine the fee for various commercial and multi-household developments. Costs vary as would be expected as the
infrastructure necessary to provide service also vary across communities. Note that Billings
made the policy choice to charge a single amount for all residential meter sizes thereby choosing
to undercharge multi-household users.
A comparison and contrast with other communities must also look at more than just impact fees. The following table from the FY2013 City of Bozeman budget depicts mill levy rankings.
City 2010 Census Populations FY2012 Mills Levy Rank As a % of Bozeman’s Levy
Havre 9,310 241.26 1 145%
Missoula 66,788 233.34 2 140%
Livingston 7,044 209.06 3 125%
Great Falls 58,505 183.24 4 110%
Kalispell 19,927 175.93 5 106%
Billings 104,170 168.73 6 101%
Bozeman 37,280 166.75 7 100%
Belgrade 7,389 156.69 8 94%
Helena 28,190 155.82 9 93%
Whitefish* 6,357 120.40 10 72%
West Yellowstone* 1,271 88.21 11 53%
*West Yellowstone and Whitefish both utilize Local Option Resort Taxes as an alternative or
supplement to property taxes, which the City of Bozeman is currently prohibited from doing by state law.
There are many different comparisons between communities on this issue which could be made.
When determining comparisons to make in this report it was decided by Staff that the scope
must, of necessity, be restricted to keep the discussions focused. Evaluation of specific communities outside of Montana brings in additional factors such as different tax and infrastructure financing tools and statues. This increases the level of complexity beyond what
could be achieved with the resources available.
Comment 5: This comment discusses the possibility of creating methods to offset costs for
targeted industries which significantly advance the City’s economic development goals. The impact fee program does not specify who needs to pay the impact fee. Section 2.06.1700.H states that the City may pay impact fees from other funding sources to advance economic
210
15
development. Revenues from monthly rates can also be used to pay for capacity expanding
projects. For example, the City has approximately 10,800 water accounts. If the City
Commission established an additional fee of 25 cents per month per account over the course of a
year it could create revenue of $32,400 per year. This amount would likely be adequate to offset the water impact fees for 2-6 non-residential projects per year depending on the intensity of water demand. The Commission could establish a program with criteria for qualification.
Projects which met the criteria could have their water impact fees paid for up to the limits of the
program funding. No change to the impact fee ordinance would be required for this approach. Creation of such a program and any rate adjustment would likely be coordinated with the annual utility rate setting process which typically occurs in July –August.
Comment 6: Impact fees make certain costs of land development explicit instead of hidden in
land costs or monthly bills. They therefore help to provide better information for decision
making. They also act to overcome one of the principal barriers to availability of land which is
the lack of needed infrastructure. For example, it is very difficult for a single development to overcome a barrier such as a needed but not funded traffic signal. However, when costs are shared and that development may pay a small portion of the cost of the needed traffic signal and
move forward both time and dollar expenses are reduced. This helps to make land more readily
available for development. Effectiveness of public infrastructure investments can be increased by
more active coordination between long range facility planning, CIP scheduling, and operational activities in the Public Works, Economic Development and Community Development departments. This does not require any change in ordinance.
UNRESOLVED ISSUES: As shown in Section F there are implementation items needing
additional discussion. However, the primary focus of the November 26th meeting is to decide whether or not to adopt the Resolution accepting the wastewater impact fee study update. Additional discussion and actions will be necessary to carry out the options presented under
Section F of the memo and these may occur after adoption of the study.
ALTERNATIVES: Study: 1) Adopt the wastewater impact fee study as presented.
2) Delay adoption to a future time.
3) Adopt the wastewater impact fee study with directed changes after having made findings
to demonstrate why the changes are needed. 4) Decline to adopt the wastewater impact fee study and continue to use the study now in place.
Implementation:
1) Discuss the various options described under Section F and give direction on which ones
to pursue further. 2) Defer discussion to a future date.
FISCAL EFFECTS: The fiscal effects of this specific policy discussion are not immediate.
These proposed studies directly impact the amounts the City will collect in Impact Fee revenues
in the coming years. Expenditures of the fees will enable continued new construction which contributes on-going revenues and which will incur on-going expenses for provided services.
Below are the total Impact Fee revenues collected for each of the past 5 years. The street fee
collection reflects the 40% discount now in place. How much the city collects each year depends
on a number of factors:
211
16
1. The level of the fee charged to the developer/property owner. (i.e. 60%, 80%, 100% of
the study amount.) and,
2. The mix of projects built in the City each year. (A Drive-Thru Restaurant will have a
higher Street Impact fee than a Single Family Residence; a change in use to remodel an office might require additional street impact fees but no water impact fees, etc.)
City Impact Fee
Collections FY08 FY09 FY10 FY11 FY12
TOTAL
FY08-FY12
Street Impact Fees $1,948,550 $1,198,319 $ 751,223 $1,208,135 $1,090,715 $ 6,196,942
Fire Impact Fees $259,726 $186,690 $187,476 $190,292 $245,250 $1,069,434
Water Impact Fees $1,237,939 $768,363 $744,557 $713,387 $981,095 $4,445,341
Sewer Impact Fees $1,306,893 $663,766 $667,909 $636,878 $986,905 $4,262,351
$4,753,108 $2,817,138 $2,351,165 $2,748,692 $3,303,965 $15,974,068
These studies also affect the policies around how Impact Fees may be spent. For instance,
• if the adopted Fire Impact Fee study only supports 75% contribution to Fire Stations, our Capital Plans will need to be updated and/or changed to reflect this change in policy. We will need to find another source of revenues to offset 25% of the costs of building
future fire stations.
• if the Water Impact Fee study no longer contains an element related to Water Supply
development costs, we will need to change our funding plans for some of the future IWRP outcomes and projects.
• If the Street Impact Fee Study does not contain collector streets then additional funding
sources must be identified and implemented.
Attachments:
Commission Resolution 4422
Wastewater Impact Fee Study dated 9/23/2012
The remaining attachments listed below are the same as and provided with the agenda item materials for the Water Impact Fee and Commission Resolution 4421 and are relevant but are not
duplicated with this agenda item.
Impact Fee Advisory Committee minutes from 8/16 and 9/13
Examples of applied and current fees Comparison of I-90 corridor impact fees Comparison of Bozeman to national averages
National impact fee survey 2012
Impact fee reduction Study – Florida 2010
Bozeman building permit history MBIA housing starts Rae system investment fees
Billings water and sewer system development fees
Helena system development fees
Report compiled on: 11/28/2012
212
Resolution 4422 Page 1 of 4
COMMISSION RESOLUTION NO. 4422 A RESOLUTION OF THE CITY COMMISSION OF THE CITY OF BOZEMAN, MONTANA, ADOPTING THE WASTEWATER IMPACT FEE STUDY PER ARTICLE 2.06, BMC.
WHEREAS, the City of Bozeman is committed to addressing the community’s
expressed needs and desires for services; and
WHEREAS, the City of Bozeman is committed to meeting those desires and demands
for services in a fiscally responsible manner; and
WHEREAS, the City of Bozeman is committed to meeting those desires and demands
for services in a manner which recognizes the fiscal and legal interests of all of the system users
now and in the future and not a limited subset of users; and
WHEREAS, the City of Bozeman has developed and adopted a wastewater facility
plan which examined current and future needs and provides a lawful, logical, balanced,
operationally sound, and cost effective basis upon which to maintain and develop the City’s
transportation system; and
WHEREAS, the City Commission has chosen to utilize impact fees as one element of
an integrated approach to fund and provide Wastewater services; and
WHEREAS, Sections 7-6-1601 through 7-6-1604, MCA provide specific authority
and guidance regarding the documentation necessary to establish an impact fee and procedures to
adopt and administer an impact fee; and
213
Resolution 4422 Page 2 of 4
WHEREAS, the City contracted with TischlerBise, Inc. to provide professional
services in development of an updated Wastewater impact fee study (the Fee Study) [also known
as a service area report];
WHEREAS, TischlerBise, Inc. reviewed the existing demand and needs for
wastewater facilities, the existing facilities available to meet that demand, and the method of
financing the existing systems and needed new facilities; and,
WHEREAS, TischlerBise, Inc. also reviewed the contribution made or to be made in
the future in cash or by taxes, fees, or assessments by property owners towards the capital costs
of Wastewater facilities; and,
WHEREAS, TischlerBise, Inc. reviewed and relied upon the City of Bozeman’s level
of service (LOS) standards and facility cost assumptions as established by recently constructed
projects in recommending Wastewater impact fees; and,
WHEREAS, TischlerBise, Inc. prepared the Fee Study dated September 23, 2012,
including the assumptions, population and residential and non-residential development
projections, capital infrastructure and impact fee calculations, which study has been submitted to
and reviewed by City staff, Impact Fee Advisory Committee, and City Commission; and,
WHEREAS, in addition to the Fee Study, TischlerBise, Inc. and the City have
prepared, updated, and relied upon other documentation, as required by section 7-6-1602 MCA,
in developing the Wastewater facilities impact fees adopted pursuant to this Resolution,
including but not limited to the following which has been summarized in the required service
area report:
(1) The most current wastewater facility plan;
(2) City of Bozeman Design and Specifications Manual;
214
Resolution 4422 Page 3 of 4
(3) Most recent bids and costs for actual construction of piping and plant expansions;
(4) Adopted Wastewater Impact Fee Capital Improvement Program;
(5) Adopted Wastewater Capital Improvement Program, and
(6) the City Budget; and
WHEREAS, the City develops its Wastewater facility plans, and its capital
improvements program in a manner open to the public and accepts and responds to public
comment and input; and
WHEREAS, the City and TischlerBise have developed the Fee Study in a manner
open to the public and accepted and responded to comment and input; and
WHEREAS, the City of Bozeman Impact Fee Advisory Committee has considered
and made a recommendation to the City Commission on the Fee Study; and
WHEREAS, the Impact Fee Advisory Committee conducted public hearings on the
subject of the transportation impact fee study on August 16, 2012 and September 13, 2012, and
the City Commission conducted a public hearing on October 8, 2012, and a public meeting on
December 10, 2012; and
WHEREAS, public comment was received and considered; and
WHEREAS, the City Commission reviewed and discussed the Fee Study and accepts
and agrees with the content of the Fee Study and recognizes that updates and modifications will
be made to the fee schedule in the future in accord with the annual cost adjustment requirements
of Chapter 2, Article 6, Division 9 BMC; and
WHEREAS, the City Commission finds all required elements necessary for
compliance with standards for development of an impact fee have been satisfied.
215
Resolution 4422 Page 4 of 4
NOW, THEREFORE, BE IT RESOLVED by the City Commission of the City of
Bozeman, Montana, that
1. The September 23, 2012 draft of the Wastewater Impact Fee Study Update, as
contained in Exhibit "A", attached hereto and by this reference made a part hereof, is
hereby adopted.
2. As of the 1st day of January 2013, any person who seeks to obtain any of the forms of
development listed 2.06.1670, BMC must pay a Wastewater Impact Fee pursuant to the
schedule included in Exhibit A of this Resolution .
Effective Date.
PASSED AND APPROVED by the City Commission of the City of Bozeman, Montana,
at a regular session thereof held on the _____ day of ________, 2012. This resolution shall be in
full force and effect on January 1, 2013.
___________________________________
SEAN A. BECKER Mayor ATTEST:
________________________________________
STACY ULMEN, CMC City Clerk
APPROVED AS TO FORM:
___________________________________
GREG SULLIVAN
City Attorney
216
217
218
219
220
221
222
223
224
225
226
227
228
229
230
231
232
233
234
235
236
237
238
239
240
241
242
243
244
245
246
247
248
249
250
251
252
253
254
255
256