HomeMy WebLinkAbout08-06-07_Approve Resolution No_ 4047, Adopting the July 200_22
Report compiled on July 31, 2007
Commission Memorandum
REPORT TO: Honorable Mayor and City Commission
FROM: Andrew Epple, Planning Director
Chris Kukulski, City Manager
SUBJECT: Commission Resolution 4047 adopting the Water Impact Fee Study
Update
MEETING DATE: Monday, August 6, 2007
RECOMMENDATION: Adopt Commission Resolution 4047.
BACKGROUND: HDR Engineering has prepared an update to the City’s water impact fee
study. The draft report was the subject of a public review process in conformance with statute.
On July 23, 2007 the City Commission directed staff to bring back a resolution adopting the fee
study and setting an effective date.
The updated fee study includes some changes in methodology, notably those relating to large
meter sizes and annual inflation adjustments. These changes need to be reflected in the
authorizing ordinance. The Commission will act on second reading on Ordinance 1707 enacting
these changes. In order to make the transition as smooth as possible Staff recommends that the
effective date of both Ordinance 1707 and Resolution 4047 be the same. Staff has identified
September 8, 2007 as the date that best meets both statutory requirements and desire for
timeliness. Both documents therefore will take effect on September 8th if passed as presented.
UNRESOLVED ISSUES: None identified at this time.
FISCAL EFFECTS: Impact fees affect the City’s ability to finance infrastructure and continue
to support growth and public safety.
ALTERNATIVES: As suggested by the City Commission.
CONTACT: Please feel free to email Chris Saunders at csaunders@bozeman.net if you have
questions prior to August 6th.
Respectfully submitted,
Andrew Epple, Planning Director
Chris Kukulski, City Manager
Attachments: Commission Resolution 4047
Water Impact Fee Study
202
COMMISSION RESOLUTION NO. 4047
A RESOLUTION OF THE CITY COMMISSION OF THE CITY OF BOZEMAN,
MONTANA, ADOPTING THE JULY 2007 WATER IMPACT FEE COST OF
SERVICE STUDY UPDATE.
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 interest 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 water facility plan which
examines current and future water needs and provides a lawful, logical, balanced, operationally sound,
and cost effective basis upon which to maintain and develop the City’s water system; and
WHEREAS, the City Commission has chosen to utilize impact fees as one portion of an
integrated approach to provide water services; and
WHEREAS, Sections 7-6-1601 through 7-6-1604, MCA provide specific authority and
guidance about the necessary documentation to establish an impact fee and procedures to adopt and
administer an impact fee; and
WHEREAS, the City simultaneously with development of the updated water impact fee also
pursued development of updated water rates; and
WHEREAS, the City staff has developed the water facility plan, capital improvements program,
rate study, and impact fee 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 considered and made a
recommendation to the City Commission on the draft document; and
WHEREAS, the City Commission conducted a public hearing on May 21, 2007 and continued
the public hearing to July 23, 2007 to enable an extended period of time for public comment and input
on the draft impact fee study update; and
WHEREAS, the Consultant assisting the City of Bozeman during the period between the public
hearings did receive and respond to public comment and when appropriate made revisions to the draft
impact fee study update; and
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WHEREAS, the revised draft was made available for review to the public prior to the resumed
public hearing on July 23, 2007; and
WHEREAS, the City Commission again opened the public hearing on July 23, 2007; and
WHEREAS, no testimony was given which disputed the factual basis of the fee study update or
the methodology of the impact fee study update as presented on July 23, 2007; and
WHEREAS, the City Commissioners have reviewed and discussed this impact fee study update
and accept and agree with the content of the impact fee study update and recognize that updates and
modifications will be made in the future in accord with the requirements of Chapter 3.24 BMC; and
WHEREAS, the City Commission found that all required elements necessary for compliance
with standards for development of an impact fee have been satisfied; and
WHEREAS, the City Commission on July 23, 2007 voted to direct staff to bring back a
resolution of adoption for the water impact fee study update.
NOW, THEREFORE, BE IT RESOLVED by the City Commission of the City of Bozeman,
Montana, that the July 2007 draft of the Water Impact Fee Study Update, as contained in Exhibit "A",
attached hereto and by this reference made a part hereof, is hereby adopted.
PASSED AND ADOPTED by the City Commission of the City of Bozeman, Montana, at a
regular session thereof held on the 6th day of August 2007 and specifying that the study shall be
implemented on September 8, 2007.
__________________________________________
Jeffrey Krauss, Mayor
ATTEST:
_____________________________________
Cynthia Jordan Delaney
Acting City Clerk
APPROVED AS TO FORM:
___________________________________
Paul Luwe
City Attorney
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City of Bozeman
Final Report
Impact Fees for the
Water System
July 2007
Prepared by
HDR Engineering, Inc.
205
July 18, 2007
Mr. Chris Saunders
City of Bozeman
20 E Olive Street
Bozeman, MT 59715
Subject: Impact Fees for the Water System
Dear Mr. Saunders:
HDR Engineering Inc. was retained by the City of Bozeman (City) to develop recommended
impact fees for the water and wastewater systems for new development. While the City
currently has impact fees or system development charges for the water and wastewater systems,
these fees need to be updated and assure compliance with Montana law. To that end, please find
attached our final report detailing the findings, conclusions and recommendations of the review
undertaken by HDR Engineering for the determination of cost based impact fee for the City’s
water system.
This final report has incorporated comments from the Southwest Montana Building Industry
Association. HDR Engineering, Inc. recommends that the City have the charges set forth in this
report reviewed by its legal counsel to assure compliance with Montana law.
We appreciate the opportunity to provide this technical report to the City. Should you have any
questions about this report, please call. It has been a pleasure working with you on this project.
We look forward to the opportunity to continue to provide assistance to the City.
Sincerely yours,
HDR ENGINEERING INC.
Randall P. Goff
Project Principal
Attachments
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Table of Contents i
City of Bozeman, Montana
Contents
1 Introduction and Overview of the Study
1.1 Introduction..........................................................................................................1-1
1.2 Overview of the Study.........................................................................................1-1
1.3 Disclaimer............................................................................................................1-2
1.4 Summary..............................................................................................................1-2
2 Overview of Impact Fees and “Generally Accepted” Utility
Industry Practices
2.1 Introduction..........................................................................................................2-1
2.2 Defining Impact Fees...........................................................................................2-1
2.3 Historical Perspective..........................................................................................2-2
2.4 Impact Fees and “Generally Accepted” Practices ...............................................2-3
2.5 Financial Objectives of Impact Fees....................................................................2-6
2.6 Relationship of Impact Fees and New Construction Activity .............................2-7
2.7 Summary..............................................................................................................2-8
3 Overview of Impact Fee Methodologies
3.1 Introduction..........................................................................................................3-1
3.2 Impact Fee Criteria ..............................................................................................3-1
3.3 Overview of the Impact Fee Methodology..........................................................3-2
3.4 Summary..............................................................................................................3-4
4 Legal Considerations in Establishing Impact Fees for the City
4.1 Introduction..........................................................................................................4-1
4.2 Requirements under Montana Law......................................................................4-1
4.3 Summary..............................................................................................................4-4
5 Determination of the City Water Impact Fees
5.1 Introduction..........................................................................................................5-1
5.2 Overview of the City’s Water System.................................................................5-1
5.3 Present Water Impact Fees...................................................................................5-1
5.4 Service Areas.......................................................................................................5-2
5.5 Calculation of the City’s Water Impact Fees.......................................................5-2
5.6 Net Allowable Water Impact Fee ........................................................................5-6
5.7 Key Assumptions.................................................................................................5-7
5.8 Implementation of the Impact Fees......................................................................5-8
5.9 Consultant Recommendation...............................................................................5-8
5.10 Summary..............................................................................................................5-8
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Table of Contents ii
City of Bozeman, Montana
Tables
5-1 Present Water Impact Fees...................................................................................5-1
5-2 Water System Planning Criteria...........................................................................5-3
5-3 Water System Equivalent Residential Units........................................................5-4
5-4 Allowable Water Impact Fees..............................................................................5-7
5-5 Allowable Water System Impact Fees.................................................................5-7
Figures
2-1 Overview of the Three-Interrelated Analyses to Review Rates...........................2-4
2-2 Overview of the “Cash-Basis” Approach to Establishing
Revenue Requirements........................................................................................2-5 Appendix A – Water Impact Fees
1 Development of Level of Service and EDUs
2 Source of Supply
3 Distribution Storage
4 Transmission/Distribution Mains
5 Debt Service Credit
6 Summary
7 Large Meter Size Calculation
Appendix B – Montana Code for Impact Fees
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Introduction and Overview of the Study 1-1
City of Bozeman, Montana
“The objective of this
report is to properly place
in context the purpose of
impact fees, and to
determine cost based
impact fees for the water
system that complies with
Montana law.”
Section 1
Introduction and Overview of the Study
1.1 Introduction
HDR Engineering, Inc. was retained by the City of Bozeman; Montana (City) to update and
develop recommended cost based impact fees for the City’s water system that comply with
Montana Code 7-6-1601 to 7-6-1604. This report provides details of the development of cost
based impact fees for the City’s water system. Impact fees are a
one-time assessment against new development to pay for the cost
of infrastructure required to provide service. Impact fees provide
the means of balancing the cost requirements for new utility
infrastructure between existing customers and new customers.
The portion of existing plant and future capital improvements
that will provide service (capacity) to new customers is included
in the impact fees. In contrast to this, the City has future capital
improvement projects that are related to renewal and replacement
of existing facilities in service. These infrastructure costs are
typically included within the rates charged to the City’s
customers, and are not included within the impact fee. Impact
fees and rates exclude those portions of infrastructure directly related to individual development
projects.
By establishing cost-based impact fees, the City will assure that “growth pays for growth” and
existing utility customers will be sheltered from the financial impacts of growth. The City
formally adopted the policy of having beneficiaries of services pay for the services in 1983. The
policy has remained in effect ever since and is reflected in many aspects of the City financial
structure.
1.2 Overview of the Study
This report is divided into five distinct components. The next section of the report, Section 2,
provides a review of “generally accepted” utility industry practices as they relate to impact fees.
At the same time, it also discusses the financial objectives of impact fees and the practices of
other utilities in relation to this fee. Section 3 provides an overview of the criteria and
methodologies used in the development of cost-based impact fees and Section 4 provides a
summary of the legal requirements for the enactment of impact fees under Montana law. The
cost based impact fee calculation for the City’s water system is provided in Section 5. The study
relies upon the adopted water facility plan and other standards established by the City. These
additional materials are cited to but not directly included in this study.
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Introduction and Overview of the Study 1-2
City of Bozeman, Montana
1.3 Disclaimer
HDR Engineering, Inc., in its determination of impact fees presented in this report, has used
“generally accepted” engineering, accounting and ratemaking principles. This should not be
construed as a legal opinion with respect to Montana law. Prior to adoption of this study, the
City conducted a legal analysis of its impact fee program, including this study, and concluded
that the program conforms to all legal requirements.
1.4 Summary
This section of the report has provided an overview of the report developed for the City
concerning water impact fees. The next section of the report will discuss the “generally
accepted” utility industry practices as they relate to impact fees.
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Overview of Impact Fees and “Generally Accepted” Utility Industry Practices 2-1
City of Bozeman, Montana
“Impact fees are capital
recovery fees that are generally
established as one-time charges
assessed against developers or
new water customers as a way
to recover a part or all of the
cost of system capacity
constructed for their use.
Section 2
Overview of Impact Fees and “Generally
Accepted” Utility Industry Practices
2.1 Introduction
An important starting point in discussing the City’s continued implementation of water impact
fees is an understanding of the purpose and concept of impact fees and the financial objective of
those fees. This section of the report will discuss the concept of impact fees and the “generally
accepted” practices of the industry.
2.2 Defining Impact Fees
One must first define an “impact fee” before beginning
an assessment and review of the fees. Impact fees are
also often called system development charges (SDC’s),
capacity charges, buy-in fees, facility expansion charges,
plant investment fees, etc. Regardless of the name
applied to the fee, the concept is still the same. Simply
stated, impact fees “are capital recovery fees that are
generally established as one-time charges assessed
against developers or new water customers as a way to
recover a part or all of the cost of system capacity
constructed for their use. Their application has generally occurred in areas that are experiencing
extensive new residential and/or commercial development.”1 The main objective of an impact
fee is to assess against the benefiting party, their proportionate share of the cost of infrastructure
required to provide them service. Stated another way, impact fees imply that new development
creates new or additional costs on the system, and the impact fee assesses that cost in an
equitable manner to those customers creating the additional cost.
1 George A. Raftelis, 2nd Edition, Comprehensive Guide to Water and Wastewater Finance and
Pricing (Boca Raton: Lewis Publishers, 1993), p. 73.
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Overview of Impact Fees and “Generally Accepted” Utility Industry Practices 2-2
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2.3 Historical Perspective
Governments are established to protect the health and safety of the public. Provision of
infrastructure, such as wastewater collection and treatment systems, directly advance this
purpose by avoiding disease. Due to its importance, provision of adequate infrastructure to
deliver adequate service has long been a concern of local, state, and federal governments.
Historically, the financing of infrastructure was typically paid for via long-term debt and “pay as
you go” rates. However, over the last twenty years, the use of impact fees as a method of
financing growth and infrastructure has risen sharply. According to recent national surveys,
about 60 percent of all cities with over 25,000 residents and almost 40 percent of all metropolitan
counties use some form of impact fees. In California and Florida, the extent of cities and counties
using impact fees is at 90 and 83 percent, respectively. Since1987, 26 states have passed impact
fee enabling acts. Most of these states are located in the western United States, Great Lakes
region, and on the Atlantic coast. Unfortunately, many of these acts are as prohibitive as they are
permissive.2 At this time, the State of Montana has very specific legislation related to impact
fees. This specific legislation regarding the fees provides the City specific authority to establish
and collect impact fees. This authority is provided in Montana Code Section 7-6-1601 to 7-6-
1604.
While many utility managers viewed impact fees as an important and alternative source of
funding for new capital construction, these fees were also being rationalized from a number of
different perspectives. Among these were the following:3
To shift the fiscal burdens from growth from existing development to new development
To synchronize the construction of new or expanded facility capacity with the arrival of new
development
To ensure that new development decisions include broad and realistic cost information.
To respond to locally vocal anti-growth sentiments
Each of these different perspectives is discussed in more detail below. In addition, impact fees
allow the continued ability to develop land by avoiding failed or insufficient infrastructure that
constrains growth.
Historically, existing development was often subsidized by federal or state resources. As an
example, in the early 1970’s, many wastewater treatment plants in the U.S. were 90% grant
funded by the Environmental Protection Agency (EPA). Today, grants are nearly extinct,
replaced instead by low-interest state revolving fund (SRF) loans. City’s ability to issue bonds
are constrained by state law and voter initiatives have limited the ability to increase taxes.
Citizens of communities have also expressed increasing reluctance to increase their taxes and
fees to provide benefits primarily to others. Therefore, as existing customers were being
impacted by the cost of growth, local communities searched for methods to help minimize rate
2 www.impactfees.com.
3 Adapted from: Arthur C. Nelson, System Development Charges for Water, Wastewater and
Stormwater Facilities (Boca Raton: Lewis Publishers, 1995) p. 6-7.
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Overview of Impact Fees and “Generally Accepted” Utility Industry Practices 2-3
City of Bozeman, Montana
and the impacts of the cost of growth.
Unchecked growth and inefficient low density development is very costly on a per unit basis. In
response to this dilemma, many legislative bodies created urban growth boundaries. At the same
time, utilities moved towards impact fee and extension policies that assist in managing system
growth in an orderly and coordinated manner. As a result, improved planning and cost-based
fees have helped utilities provide necessary services, manage the costs of growth, while
stabilizing rates to existing customers.
Establishing the price of a commodity equal to its cost is a basic economic and market principle.
In theory, consumers of a service will make “optimal” consumption decisions when the price of
the commodity is set equal to its cost. By establishing cost-based impact fees, developers should
be in a position to make better and more rational decisions concerning new development. At the
same time, proper pricing of impact fees also encourages “right sizing” of facilities to serve new
development. In other words, given the proper price signal, the developer will properly size their
service facilities to meet their realistic needs (e.g. installing a ¾-inch meter and service pipeline
versus a 2" meter and service pipeline).
Within all communities, there is a segment of the population that wishes to maintain the status
quo. Concerns over the possibility of increased taxes and service rates and decreased quality of
services due to new development can be a material factor in opposition to growth. Adoption of
impact fees, even if only partially cost-based, helps to constrain cost impacts and loss of service
quality to existing system users.
Accountability, efficiency, and transparency of government has received greater emphasis over
the past two decades. The process of developing and utilizing impact fees is heavily focused on
clear identification of future demand, current conditions, and equitable assignment of costs. The
use of impact fees helps coordinate provision of service to needed locations in a timely manner.
Impact fees therefore, when use correctly, support accountability, efficiency, and transparency in
government.
In summary, the use of impact fees has changed over time, as historical funding sources such as
grants have been reduced or eliminated. In response, many communities have moved towards
adoption of cost-based impact fees, particularly in areas of high growth.
2.4 Impact Fees and “Generally Accepted” Practices
Impact fees are one input into the rate setting process. Therefore, it is important to understand
how, within the context of “generally accepted” utility industry practices, impact fees may be
used. In conducting a comprehensive rate study, three interrelated analyses are typically
conducted. They are a revenue requirement analysis, cost of service analysis and rate design
analysis. Figure 2-1 provides an overview of each of these analyses.
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Overview of Impact Fees and “Generally Accepted” Utility Industry Practices 2-4
City of Bozeman, Montana
Figure 2-1
Overview of the Three-Interrelated Analyses to Review Rates
Impact fees are factored into the revenue requirement analysis. The revenue requirement
analysis for most municipal utilities is referred to as the “cash basis” approach. Figure 2-2,
shown below, provides an overview of the key components of the “cash basis” approach to
developing revenue requirements.
Revenue Requirement Analysis Compares the sources of funds (revenues) to
the expenses of the utility to determine the
overall adjustment to rates
Cost of Service Analysis Allocates the total revenue requirements to the
various customer classes of service in a “fair
and equitable” manner
Rate Design Analysis Consider both the level and the structure of the
rate design to collect the appropriate and
targeted level of revenue
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Overview of Impact Fees and “Generally Accepted” Utility Industry Practices 2-5
City of Bozeman, Montana
Figure 2-2
Overview of the “Cash-Basis” Approach to Establishing Revenue Requirements
As can be seen in Figure 2-2, there are two elements to establishing the “cash basis” revenue
requirements. The top or blue box shows the four basic cost components that are included within
the “cash basis” revenue requirements. In contrast, the bottom or yellow box illustrates the
various methods used to fund capital infrastructure projects.
It should be noted in Figure 2-2 that impact fees may be used (applied) in two different ways,
each having a different impact upon the utility’s revenue requirements and rates. The first
possible use of impact fees is shown in the bottom or yellow box. In that particular case, the
impact fees are applied directly against growth or expansion related capital projects. The effect
of using the funds in this manner is that it helps to minimize long-term borrowing. For each
dollar of impact fees applied in this manner, one less dollar of long-term borrowing and
associated interest costs is required.
+ Operation and Maintenance Expenses
+ Taxes / Transfer Payments
+ Debt Service (Net of Applied Impact Fees)
+ Capital Improvements Funded From Rates
= Total Revenue Requirements
– Miscellaneous Revenues
= Total Required From Rates
Total Capital Improvement Projects
Less: Outside Funding Sources
– Capital Reserves
– Impact Fees
– Grants
– Long-Term Debt
– Other Capital Funding Sources
= Total Capital Improvements Funded From Rates
i + term
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Overview of Impact Fees and “Generally Accepted” Utility Industry Practices 2-6
City of Bozeman, Montana
“An impact fee represents a
fee for service payable by all
users creating additional
demand on the facility. To
understand this perspective,
one must view new
development as creating the
need for new or expanded
facilities.”
The other potential use of impact fees is to apply the fees against growth-related debt service.
As shown in Figure 2-2, debt service paid by rates is shown as net of any impact fees revenues
used to pay debt service. In contrast to applying impact fees directly against the capital project,
in this particular case, for every dollar applied in this manner, there is a corresponding dollar
decrease in revenue requirements and the resulting rates. This is a very effective method to help
minimize rates, but even better at matching the cost of growth to the way in which customer
growth occurs. In other words, a utility may build or expand a facility with sufficient capacity to
handle growth over the next ten to twenty years. That growth doesn’t occur in the first year, but
rather, trickles in over a number of years. Therefore, applying the impact fees against the debt
service associated with the project creates a better matching of the cost incurrence (debt
payments) to the actual customer growth.
2.5 Financial Objectives of Impact Fees
An impact fee represents a fee for service payable by all
users creating additional demand on the facility. To
understand this perspective, one must view new
development as creating the need for new or expanded
facilities. As a result, without payment of impact fees, the
City would have insufficient revenues to provide the
facilities, and therefore the community is unable to
accommodate new development. Protection of public safety
requires the provision of public infrastructure; therefore the
City has adopted regulations which require its installation so
that adequate service can be delivered. In some
circumstances it is more effective and efficient to collect money payments. For example, rather
than requiring each development to try to build a tiny part of a major water pipe
Impact fees help the City achieve a number of different financial objectives. These objectives
include financial equity between customers; maintaining cost effective services, avoiding costly
debt, and protecting public safety.
One key financial/rate objective that is achieved from impact fees is equity. Equity is achieved
in two different ways. First, an impact fee establishes equity between existing (old) customers
and new customers. For example, assume that a water treatment plant is expanded by 5 million
gallons per day (MGD) to accommodate growth and the facility is financed over a 20-year
period. Without an impact fee, new customers connect to the system and pay for the debt service
on the facility via their rates. The customer that connects to the system in year one will
contribute to the cost of that facility for 20 years. In contrast, the person who connects in year 10
will only pay for debt service on the facility for ten years, even though the “value” of the
capacity was the same for the person connecting in year 1 or year 10. Impact fees create equity
within the system by addressing the issue of timing and the “value” of the assets and the “value”
of the capacity.
The second way in which impact fees help to create equity is after a facility is paid for.
Continuing with the example above, after the debt service is fully paid off in year 20, and
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Overview of Impact Fees and “Generally Accepted” Utility Industry Practices 2-7
City of Bozeman, Montana
Most commonly, impact fees are
adopted in high growth areas
where infrastructure expansion
has strained existing financial
resources. Philosophically,
many utilities desire to have a
policy of “growth paying for
growth.”
assuming that capacity is still available, a new customer connecting to the system would “in
theory” receive their capacity at zero cost, because the debt service is paid in full. All the
existing customers connected to the system, over the past twenty years, paid for that customer’s
capacity. Therefore, an impact fee is also a form of a financial reimbursement to existing
ratepayers who paid for those facilities in advance of the new customer connecting to the system.
Based upon the above example, impact fees also have an equity perspective associated with the
rate setting process. That is, impact fees are a form of “system buy-in.” A properly established
impact fee implies that a new customer connecting to the system has bought into the system at its
current cost. Therefore, from a rate setting perspective the utility does not need to have rates for
“old” and “new” customers. Again, existing customers have been equitably reimbursed for their
past investments.
Even with the above discussion, not all communities
have impact fees. Most commonly, impact fees are
adopted in high growth areas where infrastructure
expansion has strained existing financial resources.
Philosophically, many utilities desire to have a policy of
“growth paying for growth.” Impact fees comport with
that philosophy, and it is achieved by applying the
impact fees either directly against the capital cost of the
expansion facilities or against the debt service
associated with it.
2.6 Relationship of Impact Fees and New Construction
Activity
There are a number of misconceptions surrounding impact fees. In a very broad sense, some
may argue that impact fees are bad for economic development. These arguments center around
two issues. These are as follows:
Development will occur on those parcels with lower or non-existent impact fees.
Impact fees raise the cost of doing business and hinder development
Of the research conducted on these topics, just the opposite has been found. Provided below is a
brief explanation of each.
Developers look at many factors before a parcel is developed. One misconception concerns the
selection of parcels for development and whether impact fees are applied to the land.
“The argument goes that if a developer is choosing between two parcels of land on which
to build—where the first parcel is inside a city where SDC’s (System Development
Charge - impact fees) are charged and the second is just outside where lower or no
SDC’s (impact fees) are charged—the developer will choose the second parcel.
The trouble is this means that the owner of the first parcel does not make a sale. The
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Overview of Impact Fees and “Generally Accepted” Utility Industry Practices 2-8
City of Bozeman, Montana
“As can be seen, at least
in the opinion of
Nelson, impact fees do
not hinder growth, but
in fact may help to spur
growth.”
landowner must lower the land price to offset the fee in order to make a sale. However, if
the landowner does not lower the price, this indicates that the value of future
development may be higher on that parcel. Thus, be wary of developers who claim they
will choose the second parcel. Chances are they would not have chosen the first parcel
anyway. In the meantime, the land market will be holding the first parcel available for
higher value development. In effect what might look like a loss in the short term may be
a much higher level of development in the long-term.”4
The other argument and misconception that one commonly hears about impact fees is that they
are bad for economic development. The argument against this position is as follows:
“The argument goes that because SDC’s (impact fees) raise the price of doing business,
they frustrate economic development. However, just the opposite is really true. First,
remember that SDC’s (impact fees) will be offset by reduced land prices and by enabling
the community to more easily expand the supply of buildable land relative to demand.
Now, consider what economic development really looks for: skilled labor, access to
markets, and land with adequate infrastructure. Competitiveness for economic
development will be stimulated by the new or expanded infrastructure paid in part by
SDC’s (impact fees). Besides, local governments retain the option to waive SDC’s
(impact fees) for specific kinds of economic development, such as development locating
in enterprise zones. In the competition for certain kinds of development, it will be able to
show developers the dollar value of SDC’s (impact fees) waived as a solid demonstration
of the local government’s commitment to such development.”5
As can be seen, at least in the opinion of Nelson, availability
charges do not hinder growth, but in fact may help to spur
growth. It must be remembered that an important concept
associated with impact fees is that the fees are required to
develop infrastructure concurrently with or in advance of the
actual development.
From the developer’s perspective, absent impact fees (i.e. a
moratorium on new connections) no new development can occur. Therefore, developers are
generally supportive of equitable cost-based impact fees, particularly when it provides available
capacity and opportunities for development.
4 Nelson. “System Development Charges for Water, Wastewater and Stormwater Facilities” P. 55.
5 Nelson, “System Development Charges for Water, Wastewater and Stormwater Facilities” P. 56.
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Overview of Impact Fees and “Generally Accepted” Utility Industry Practices 2-9
City of Bozeman, Montana
2.7 Summary
This section of the report has provided an overview of the financial objectives associated with
impact fees and some of the issues surrounding them. This section should have provided a basic
understanding of the fees such that when the City is ready to have a policy discussion concerning
the continued implementation of impact fees and the imposition of new impact fees, they can be
placed in proper perspective. The next section of the report will provide an overview of
methodologies for the imposition of impact fees.
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Overview of Impact Fee Methodologies 3-1
City of Bozeman, Montana
“The use of system planning
criteria is one of the more
important aspects in the
determination of the impact
fees. System planning criteria
provides the “rational nexus” or
logical connection between the
amount of infrastructure
necessary to provide service and
the charge to the customer.”
Section 3
Overview of Impact Fee Methodologies
3.1 Introduction
An important starting point in establishing impact fees is to have a basic understanding of the
purpose of these charges, along with criteria and general methodology that is used to establish
cost-based impact fees. Presented in the section of the report is an overview of impact fees
criteria and general methodologies that are used to develop cost-based fees.
3.2 Impact fee Criteria
In the determination and establishment of the impact fees, a number of different criteria are often
utilized. The criteria often used by utilities to establish impact fees are as follows:
Customer understanding
System planning criteria
Financing criteria, and
State/local laws
The component of customer understanding implies that the charge is easy to understand. This
criterion has implications on the way that the fee is implemented, administered and assessed to
the customer. Generally, for a water system, the fee is based on the size (capacity) of the meter.
This makes it easy for the customer to understand the level of fee based on the size of a meter
required to provide service. In some instances, larger meter sizes are calculated based on actual
usage. While this is more complicated, it applies to very few customers and generally more
sophisticated industrial customers. The other implication of this criterion is that the
methodology is clear and concise in its calculation of the
amount of infrastructure necessary to provide service.
The use of system planning criteria is one of the more
important aspects in the determination of impact fees.
System planning criteria provides the “rational nexus” or
logical connection between the amount of infrastructure
necessary to provide service and the charge to the
customer. The rational nexus test requires that there be a
connection (nexus) established between new
development and the existing or expanded facilities
required to accommodate new development; and
appropriate apportionment of the cost to the new
development in relation to benefits reasonably received. An example using system-planning
criteria is the determination that a single-family residential customer requires 227.24 gallons of
water distribution storage. The impact fee methodology then charges the customer for 227.24
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City of Bozeman, Montana
gallons of water distribution storage at the cost of storage.
One of the driving forces behind establishing cost-based impact fees is the City’s adopted policy
since 1983 that “growth pays for growth.” Therefore, impact fees are typically established as a
means of having new customers pay an equitable share of the cost of their required capacity
(infrastructure). The financing criteria for establishing impact fees relates to the method used to
finance infrastructure of the system and assures that customers are not paying twice for
infrastructure – once through impact fees and again through rates. The double payment can
come in through the imposition of impact fees and then the requirement to pay debt service
within a customer’s rates. The financing criteria also reviews the basis under which main line
extensions were provided and assures that customers are not charged for infrastructure that was
provided (contributed) by developers.
Many states and local communities have enacted laws which govern the calculation and
imposition of impact fees. These laws must be followed in the determination of the impact fees.
Most statutes require a “reasonable relationship” between the fee charged and the cost associated
with providing service (capacity) to the customer. The charges do not need to be mathematically
exact, but must bear a reasonable relationship to the cost burden imposed. As discussed above,
the utilization of the planning criteria and the actual costs of construction and the planned costs
of construction provide the nexus for the reasonable relationship requirement.
3.3 Overview of the Impact Fee Methodology
There are “generally-accepted” methodologies that are used to establish impact fees. Within the
“generally accepted” impact fee methodologies, there are a number of different steps undertaken.
These steps are as follows:
Determination of system planning criteria
Determination of equivalent residential dwelling units (EDUs)
Calculation of system component costs
Determination of any credits
The first step in establishing impact fees is the determination of the system planning criteria as
established in the water facility plan. A common unit of capacity demand is needed in order to
enable calculation of demand across many different types of users. This implies calculating the
amount of water required to serve a single-family residential customer. Generally for a water
system, two different criteria or common units of capacity demand are determined due to
differences in planning criteria. The first common unit of capacity demand is the peak day water
usage per EDU and the second is a water storage requirement per EDU. These two different
common units of capacity demand are developed since a majority of the water system
infrastructure is sized to meet the peak day demand, and water storage is sized to meet
equalizing, emergency and fire flow requirements.
Once the system planning criteria are determined, the number of EDUs able to be served by
expansion of system capacity can be determined. For the water system, this is determined by
utilizing the peak day water system demand and dividing it by the peak day water usage per
EDU. This is a very important calculation since it provides the linkage between the amounts of
infrastructure necessary to provide service to a set number of customers. This implies that if the
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City of Bozeman, Montana
system is designed to provide service to demands up to the year 2025, then the infrastructure
costs are divided by the EDUs in 2025 or added EDUs to 2025 to determine the cost per EDU.
Once the number of EDUs has been determined, a component by component (e.g. source of
supply, treatment, storage, etc.) analysis is undertaken to determine the component impact fee in
$ per EDU. Individual plant components are analyzed separately for the water system given that
the planning criteria for the design of the various system components differ. The calculation of
the component impact fee includes both historical assets and planned future assets. Historical
assets can be valued in a number of different ways. These include original cost plus interest,
replacement cost and depreciated replacement costs. Costs are limited to those providing
capacity expansion beyond that required for minimum local service needs, such as the local
distribution system. As shown in Exhibit 4, these costs are not included in the impact fee
calculation.
The original cost plus interest method includes the actual cost of the asset plus ten (10) years
worth of interest. This calculation is done to reflect the fact that existing customers have
provided for excess capacity in the system and hence need to be reimbursed for not only their
initial investment, but also the “carrying cost” on that investment. The reimbursement to
existing customers is accomplished by the fact that without an impact fee, rates would
otherwise be higher than they would be without impact fees.
The replacement cost method values existing assets based on the cost to replace the assets in
today’s dollars. This is done by escalating the original cost by the Engineering News Record
Construction Cost (ENR) index. The theoretical basis for the use of replacement cost is that
customers are indifferent since they would have to pay replacement cost if the infrastructure
was built today to serve their needs.
The use of depreciated replacement cost reflects the fact that the assets have been used and
hence their value to the new customer is less that the replacement cost. Caution needs to be
exercised in the use of depreciated replacement cost, since the book or accounting lives used
by many utilities are not reflective of the actual life of the asset and may result in the assets
being undervalued. An example is using a useful life for a storage reservoir of 40 years,
when in reality, with maintenance, the actual life maybe between 60 to 80 years.
Each of these three (3) methods are used in the industry and the appropriate method selected by
the City should be based on the method that best reflects the cost of providing capacity in the
systems. HDR Engineering, Inc. recommends the use of the original cost with interest method,
since it will reflect the actual cost of the City’s system. The City’s system is developed to serve
future development through existing capacity and planned future capacity additions. This has
been accomplished by the City building excess capacity and using borrowing to finance this
capacity and the by City building future capacity. Therefore, the use of the original cost with
interest method will reflect the actual costs that have been incurred or will be incurred by the
City in providing capacity to new development. This is also the most commonly used method to
value capacity in water and wastewater systems. This method also appears to comply with the
requirements under Montana law wherein in the “actual cost” of infrastructure is required.
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Once the total cost of the capital infrastructure is determined, it is then divided by the appropriate
number of equivalent dwelling units the infrastructure will serve to develop the cost per EDU for
the specific plant component.
After each plant component is analyzed and a cost per EDU is determined, the cost per EDU for
each of the plant components is added together to determine the “gross impact fee.” The “gross
impact fee” is calculated before any credits for debt service.
The last step in the calculation of the impact fee is the determination of any credits. This is
generally a calculation to assure that customers are not paying twice − once through impact fees
and again through debt service included within the water rates. A crediting mechanism is also
utilized if general obligation or tax revenue has been used to finance the infrastructure.
The final impact fee is determined by taking the “gross impact fee” and subtracting any credits.
This results in a “net impact fee” stated in $ per EDU. The general basis of this calculation for a
water system is the assumption that an EDU is equivalent to 20 gpm flow rate. Larger meter
sizes are then assigned fees based on the number of EDUs for a given meter size based on
operating capacity. The number of EDUs per meter size is generally based on the safe operating
capacity of the meter. The theory for this approach is that larger meter sizes create greater flows
on the water system and hence impose additional costs on the water system.
In order to maintain the necessary proportionality in cost to service benefits the impact fees need
to be periodically updated. Updates should examine both increased costs of construction and
changes in the number and type of infrastructure to be constructed.
3.4 Summary
This section has provided a discussion of the criteria typically used in the determination of
impact fees. In addition, an overview of the “generally accepted” methodology used in the
calculation of the impact fees has been provided. Given this background, the next section of the
report discusses any specific legal criteria that must be used by the City in the establishment of
its impact fees.
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“The laws for the
enactment of impact
fees in Montana are
found in 7-6-1601 to
7-6-1604 of the
Montana Code.
Section 4
Legal Considerations in Establishing Impact
Fees for the City
4.1 Introduction
An important consideration in establishing impact fees is any legal requirements at the state or
local level. The legal requirements often establish the methodology around which the impact
fees must be calculated or how the funds must be used. Given that, it is important for the City to
understand these legal requirements. This section of the report provides an overview of the legal
requirements for establishing impact fees under Montana law.
The discussion within this section of the report is intended to be a summary of our understanding
of the relevant Montana law as it relates to establishing impact fee. It in no way constitutes a
legal interpretation of Montana law by HDR Engineering, Inc.
4.2 Requirements under Montana Law
In establishing impact fees, an important requirement is that they be developed and implemented
in conformance with local laws. In particular, many states have established specific laws
regarding the establishment, calculation and implementation of
capacity fees. The main objective of most state laws is to assure that
these charges are established in such a manner that they are fair,
equitable and cost-based. In other cases, state legislation may have
been needed to provide the legislative powers to the utility to
establish the charges.
In general, the power to impose exactions must either be expressly
granted by statute, or be reasonably inferred from express statutory
provision. Montana Subdivision statutes authorize monetary exactions in separate sections of the
Montana Code. Mont. Code Ann. § 76-3-510 provides that, as a condition of subdivision
approval, the City may require that a development pay or guarantee payment for part or all of the
costs of extending capital facilities related to the public health and safety, including but not
limited to public roads, sewer lines, water supply lines, and storm drains to a subdivision. Mont.
Code Ann. § 76-3-621 requires that subdividers dedicate a portion of a proposed subdivision for
use as parks or open space. Alternatively, the statute authorizes the City to require the
subdivider to pay the cash equivalent to the fair market value of the required portion that would
have otherwise been utilized as a park. These statutes apply only to subdivisions.
The Montana Supreme Court has also recognized a city’s authority to impose development fees
in other circumstances. In Lechner v. City of Billings, (Mont. 1990) 797 P.2d 191, the Court
concluded that if a statutory framework authorizing the operation of an improvement or system
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City of Bozeman, Montana
of improvements existed (e.g., sewer or water system), and a provision allowing for charge of a
fee for the service or the improvement existed, then it is a reasonable extension of the city’s
express statutory authority to accumulate fees to pay for the implementation of that authority.
Cities and counties, prior to 2005, enacted impact fees through the authority of these and other
statutes and powers.
The Montana law enabling legislation for impact fees was enacted in 2005 via Senate Bill 185.
This was comprehensive legislation specifically allowing public entities in the State of Montana
to enact impact fees for various services. The legal basis for the enactment of impact fees is
found in Title 7, Chapter 6, and Part 1601 to 1604 of the Montana Code. A summary of the
Montana Code is provided below. A copy of the full code is provided as Appendix C.
A summary of the requirements under Montana law is as follows:
“7-6-1601. Definitions. As used in this part, the following definitions apply:...
…5) (a) "Impact fee" means any charge imposed upon development by a
governmental entity as part of the development approval process to fund the
additional service capacity required by the development from which it is
collected. An impact fee may include a fee for the administration of the impact fee
not to exceed 5% of the total impact fee collected.
(b)The term does not include:
(i) a charge or fee to pay for administration, plan review, or inspection
costs associated with a permit required for development;
(ii) a connection charge;
(iii) any other fee authorized by law, including but not limited to user
fees, special improvement district assessments, fees authorized under Title 7 for
county, municipal, and consolidated government sewer and water districts and
systems, and costs of ongoing maintenance; or
(iv) onsite or offsite improvements necessary for new development to
meet the safety, level of service, and other minimum development standards that
have been adopted by the governmental entity.
7-6-1602. Calculation of impact fees -- documentation required -- ordinance or
resolution -- requirements for impact fees. (1) For each public facility for which
an impact fee is imposed, the governmental entity shall prepare and approve
documentation that:
(a) describes existing conditions of the facility;
(b) establishes level of service standards;
(c) forecasts future additional needs for service for a defined period of time;
(d) identifies capital improvements necessary to meet future needs for service;
(e) identifies those capital improvements needed for continued operation and
maintenance of the facility;
(f) makes a determination as to whether one service area or more than one
service area is necessary to establish a correlation between impact fees and
benefits;
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(g) makes a determination as to whether one service area or more than one
service area for transportation facilities is needed to establish a correlation
between impact fees and benefits;
(h) establishes the methodology and time period over which the governmental
entity will assign the proportionate share of capital costs for expansion of the
facility to provide service to new development within each service area;
(i) establishes the methodology that the governmental entity will use to exclude
operations and maintenance costs and correction of existing deficiencies from the
impact fee;
(j) establishes the amount of the impact fee that will be imposed for each unit
of increased service demand; and
(k) has a component of the budget of the governmental entity that:
(i) schedules construction of public facility capital improvements to
serve projected growth;
(ii) projects costs of the capital improvements;
(iii) allocates collected impact fees for construction of the capital
improvements; and
(iv) covers at least a 5-year period and is reviewed and updated at least
every 2 years.
….5) An impact fee must meet the following requirements:
(a) The amount of the impact fee must be reasonably related to and reasonably
attributable to the development's share of the cost of infrastructure improvements
made necessary by the new development.
(b) The impact fees imposed may not exceed a proportionate share of the costs
incurred or to be incurred by the governmental entity in accommodating the
development. The following factors must be considered in determining a
proportionate share of public facilities capital improvements costs:
(i) the need for public facilities capital improvements required to serve
new development; and
(ii) consideration of payments for system improvements reasonably
anticipated to be made by or as a result of the development in the form of user
fees, debt service payments, taxes, and other available sources of funding the
system improvements.
(c) Costs for correction of existing deficiencies in a public facility may not be
included in the impact fee.
(d) New development may not be held to a higher level of service than existing
users unless there is a mechanism in place for the existing users to make
improvements to the existing system to match the higher level of service.
(e) Impact fees may not include expenses for operations and maintenance of
the facility.
7-6-1603. Collection and expenditure of impact fees -- refunds or credits --
mechanism for appeal required….
…(3) A governmental entity may recoup costs of excess capacity in existing
capital facilities, when the excess capacity has been provided in anticipation of
the needs of new development, by requiring impact fees for that portion of the
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City of Bozeman, Montana
facilities constructed for future users. The need to recoup costs for excess
capacity must have been documented pursuant to 7-6-1602 in a manner that
demonstrates the need for the excess capacity. This part does not prevent a
governmental entity from continuing to assess an impact fee that recoups costs for
excess capacity in an existing facility. The impact fees imposed to recoup the costs
to provide the excess capacity must be based on the governmental entity's actual
cost of acquiring, constructing, or upgrading the facility and must be no more
than a proportionate share of the costs to provide the excess capacity.”
The use of the methodology discussed in Section 3, is designed to assure that the proportional
share standard is met and the impact fees are in compliance with Montana law.
4.3 Summary
This section of the report has reviewed the legal basis for establishing impact fees in Montana.
HDR concludes that the City has the authority to establish cost-based impact fees and the
methodology used is designed to assure compliance with Montana law.
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Section 5
Determination of the City’s Water Impact Fees
5.1 Introduction
This section of the report presents the development of the water impact fee. The calculation of
the water impact fee presented in this section are based on the City’s fixed asset records, future
capital improvements as identified in the City's Capital Improvement Plan, and planning criteria
from the facility plan entitled, City of Bozeman Water Facility Plan, prepared by Allied
Engineering Services, Inc. and Robert Peccia and Associates, dated October, 2006 (the water
facility plan). To the extent that the cost and timing of future capital improvements change, then
the impact fee presented in this section should be updated to reflect the cost of these adjustments.
5.2 Overview of the City’s Water System
The City obtains its water supply from the Hyalite/Sourdough water treatment facility and the
Lyman Creek System. The City also has three (3) distribution storage reservoirs for a total
capacity of 11.3 million gallons. The capital improvement plan calls for expansion of the
Hyalite/Sourdough water treatment plant to 22 MGD, permitting and design for the Sourdough
Dam for raw water storage, the construction of a new 5.3 million gallon storage reservoir and for
improvements to the transmission and distribution system to serve growth.
5.3 Present Water Impact Fees
The City currently assesses an impact fee for connection to the water system. By policy, the City
has chosen to only assess 80% of the allowable fee. The current allowable water impact fees and
currently assessed water impact fees are shown in Table 5-1.
Table 5-1
City Bozeman, Montana
Present Water Impact Fees
Meter Size EDU Factor Allowable Charge Assessed Charge (80%)
¾" 1.00 $2,792.64 $2,234.11
1” 2.50 6,981.59 5,585.27
1-1/4" 3.50 9,774.23 7,819.38
1-1/2" 5.00 13,963.19 11,170.55
2" 8.00 22,341.10 17,872.88
3" 16.00 44,682.20 35,745.76
4" 25.00 69,815.93 55,852.74
6" 50.00 139,631.86 111,705.49
8" 80.00 223,410.98 178,728.78
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City of Bozeman, Montana
5.4 Service Areas
Pursuant to MCA 7-6-1602(1) (f), the following must be considered:
“makes a determination as to whether one service area or more than one service
area is necessary to establish a correlation between impact fees and benefits;”
The City operates the water system as a single integrated utility. This allows all the water
facilities to serve all customers.
Based on these factors and a knowledge of the water system, the City determined that for the
purpose of calculating and imposing Water Impact Fees, that the entire City would be treated as
a single service area pursuant to MCA 7-6-1602(1) (f).
5.5 Calculation of the City’s Water Impact Fees
As was discussed in Section 3, the process of calculating impact fees is based upon a four-step
process. In summary form, these steps were as follows:
Determination of system planning criteria
Determination of equivalent dwelling units (EDU)
Calculation of the impact fee for system component costs
Determination of any impact fee credits
Each of these areas is discussed in more detail below.
5.5.1 System Planning Criteria
The number of equivalent dwelling units (EDUs) was determined based on the planning criteria
from the water facility plan. The water facility plan used an equivalent dwelling unit usage of
202.49 gallons per EDU average flow which includes the a loss factor of 5 gpcd and a peaking
factor of 2.30 to develop a peak day flow of 465.73 gallons per day per EDU. The storage
capacity was developed based on the required storage in 2025, as identified in the water facility
plan, divided by the total number of EDUs in 2025. A summary of the EDU conversion factors
is presented in Table 5-3.
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Table 5-2
City of Bozeman, Montana
Water System Planning Criteria
Average Usage Residential 1 83.04 gallons per capita day
Average Usage Residential with losses 2 88.04 gallon per capita day
Number of Persons per Household 3 2.3
Average Day Flow 4 202.49 Gallons/Day/EDU
Peak Day Flow 5 465.73 Gallons/Day/EDU
EDU Storage Capacity 6 213.77 Gallons/EDU
1 - See page 14 Section 3.B of the Water Facility Plan – Average of Table 3.B.8.
2 - At 5 gpcd.
3 - See page 6 of Section 2 of the Water Facility Plan.
4 - Average Usage Residential times number of persons per Household.
5 - Average Day Usage times a peaking factor of 2.30 - See page 3 of Section 4.A
of the Water Facility Plan.
6 – Total storage requirement in 2025 divided by 2025 EDUs - See page 26
Section 5.B of the Water Facility Plan.
As discussed previously, certain facilities may be planned and sized around different planning
criteria. Therefore, the system planning criteria shown above will be used for different plant
components to determine the cost per EDU for that specific plant component.
5.5.2 Calculation of Equivalent Dwelling Units
The planning horizon of this impact fee study was 2005 – 2025. This is the same planning
horizon used in the water facility plan for which the City’s existing water system and future
improvements will provide service to an expanded area
As a part of this impact fee study, a projection of the number of new/additional EDUs per year
must be determined, along with the total number of EDUs at 2025. The City’s total number of
EDUs for each year was determined by dividing the peak day usage factor per EDU into total
peak day demand. The number of EDUs added during each year of the study period was forecast
based on a growth rate of 5% as used in the water facility plan (page 3, Section 4.A).
A summary of the EDUs for 2005 and 2025 are presented in Table 5-3. Details of the
determination of EDUs are provided in Exhibit 1 of the Technical Appendix.
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Table 5-3
City of Bozeman, Montana
Water System Equivalent Dwelling Units
Equivalent Dwelling Units – 2005 28,085
Equivalent Dwelling Units – 2025 74,464
After the determination of the total future water EDUs for each year of the planning period, the
focus can shift to the calculation of the impact fee for each plant component. This aspect of the
analysis is discussed in detail below.
5.5.3 Calculation of the Impact Fee for the Major System Components
The next step of the analysis is to review each major functional component as identified in the
water facility plan (see Section 5.B) of plant in service and determine the impact fee for that
component. In calculating the water impact fee for the City, both existing plant assets with
excess capacity, along with planned future capacity expanding projects were included within the
calculation. Only existing and future assets with a useful life of 10 years or greater were
included in the impact fee calculation. The major components of the City’s water system that
were reviewed for purposes of calculating impact fee were as follows:
Raw Water Storage
Treatment Plant
Distribution Storage
Transmission and Distribution Mains
A brief discussion of the impact fee calculated for each of the functional plant components is
provided below.
RAW WATER STORAGE – In order for the City to provide adequate raw water during the peak
season, it will be necessary to build raw water storage. The City’s capital improvement plan has
identified the need to start permitting and design on the Sourdough Creek Dam. Included in the
impact fee calculation is an amount equal to twenty percent of the estimated construction cost for
the dam. These costs are included in the impact fee for source of supply and treatment shown in
Exhibit 2.
TREATMENT PLANT – The City’s source of supply is provided by the Sourdough and Lyman
treatment plants. The City intends to replace the Sourdough treatment plant with a new
membrane plant to a initial capacity of 22 mgd which will replace the current 15 mgd plant. The
cost of the existing assets that will provide service to the new plant were taken from the City’s
fixed asset records and include up to ten years worth of interest. These were allocated to new
development based on the amount of increased capacity to total capacity (7/22 mgd) that will
serve new development. The estimated costs in the water facility plan were 2005 dollars. To
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City of Bozeman, Montana
more accurately reflect probable future costs the facility plan estimates were increased to 2007
dollars based on the rate of inflation. These costs were also allocated to new development based
on the amount of increased capacity to total capacity. The total cost was then divided by the new
capacity to determine a cost per gallon of $2.44. This was then multiplied by the peak day usage
per EDU. Based on the costs and capacity of the sources of supply for the City, the impact fee
for treatment plant is $1,138.09 per EDU. Details of the calculations are provided in Exhibit 2 of
Technical Appendix.
DISTRIBUTION STORAGE – The City currently has three (3) storage reservoirs with a total
storage capacity of 10.3 million gallons (MG). The City’s capital improvement plan also calls
for construction of an additional 5.3 MG Storage Reservoir. The cost of existing Lyman
reservoir and the new future reservoir were allocated to serve new development. This cost was
subsequently divided by storage capacity provided by these reservoirs to determine the cost of
storage per gallon of $0.92. This was then multiplied by the amount of storage required per
EDU. Based on the cost and capacity of distribution storage for the City, the impact fee for
storage is $196.82 per EDU. Details of the calculations are provided as Exhibit 3 of Technical
Appendix.
TRANSMISSION AND DISTRIBUTION MAINS – The City’s transmission/distribution network
consists of numerous lines from 4-inches in diameter up to 30-inches in diameter. To determine
the impact fee for transmission and distribution mains, an inventory of the existing system was
undertaken as well as those planned improvements as identified in the water facility plan. The
historical investments of the City were adjusted for interest charges up to a maximum of ten
years. Distribution and transmission mains greater than 8-inches and less than 75 year old were
assumed to serve both existing and future development and were allocated to new development
based on the ratio of new EDUs to total EDUs in 2025. Distribution line 8-inches or less were
assumed to be contributed by development and hence excluded from the impact fee calculation.
These were subsequently divided by the number of new EDUs in added from 2005 to 2025 to
determine the cost per EDU. This approach provides that new development only pays its
proportional share to the cost of existing assets providing service. Costs for future capital
improvements that were identified in the water facility plan to serve new development for the
planning horizon from 2005 to 2025 were divided by the number of new EDUs added over the
planning horizon. Only those improvements that would provide new capacity were allocated to
the impact fee. Those improvements required for current fire flow were excluded, and
redundancy improvements were allocated based on new EDUs to total EDUs and assumes that
development will contribute the first 8 inches of pipe.
In the calculation of the impact fee for transmission and distribution plant, a number of items
were excluded. First, all existing mains that were contributed by developers, financed through
improvement districts or contributed by grants were excluded from the analysis. For future
transmission and distribution plant, an item-by-item analysis was done to determine the
percentage cost of these facilities that would not serve new development. Water main
replacements which did not create additional capacity were excluded since these are not growth
related and should be paid for through rates.
For extensions to the system, it was assumed that new development would be required to pay for
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a pipe size up to 8-inches. The installation of 8” of less represents City minimum standard
improvements which are the obligations of new development or the correction of existing
deficiencies that are paid for by rates. This size is the smallest main allowed by the City’s
Design Standards and Specifications Policy. In some circumstances an individual project may
require more than the 8 inch water main to service its specific needs. Over-sizing beyond the
minimum size of pipe may be paid for by the City through impact fees in compliance with the
procedures for expending impact fee funds. Based on the costs incurred by the City, the impact
fee for existing transmission and distribution mains is $709.91 per EDU. For future transmission
and distribution mains, the impact fee is $1,105.08 per EDU. This results in a total impact fee of
$1,814.99 per EDU for transmission and distribution mains. Details of the calculation are
provided in Exhibit 4 of Technical Appendix.
In comparing the cost of transmission and distribution for the water system to the cost of
collection for the wastewater system, it should be noted that the provision of water service
requires additional pipes. This is due to the need for looping of the water system to provide
redundancy and to maintain adequate pressure.
ADMINISTRATIVE CHARGE – Under Montana statute, an impact fee may include a fee for the
administration of the impact fee program not to exceed 5% of the impact fee collected. The City
will implement the allowed 5%. The City has included a water administrative charge of $157.50
per EDU.
5.5.4 Debt Service Credits
The final step in calculating the water impact fees was to determine if a credit for payment on
debt service for the City’s outstanding bonds. The City currently has an outstanding water
revenue bond for the rehabilitation of the Lyman Creek plant which is not related to capacity
expansion. The City does not plan on issuing new debt to pay for future water system
improvements. Therefore, no debt service credit is applicable.
5.6 Net Allowable Water Impact Fees
Based on the sum of the component costs calculated above, the net allowable water impact fee
can be determined. “Net” refers to the “gross” impact fee, less any debt service credits.
“Allowable” refers to the concept that the calculated impact fee as shown in Table 5-4 is the
City’s cost-based impact fee. The City, as a matter of policy, may charge any amount up to the
allowable impact fee, but not over that amount. Charging an amount greater than the allowable
impact fee would not meet the nexus test of a cost-based impact fee. A summary of the
calculated net allowable water impact fee for the City is shown in the Table 5-4.
233
Determination of the City’s Water Impact Fees 5-7
City of Bozeman, Montana
Table 5-4
City of Bozeman, Montana
Allowable Water Impact Fees
Plant Component Impact Fee Calculation Results
Source of Supply $1,138.09
Distribution Storage 196.82
Transmission and Distribution Mains 1,814.99
Administrative Charge 157.50
Debt Service Credit for Bonds 0.00
Total $3,307.40
The total impact fee as shown for an EDU is $3,307.40 per EDU. The details of the net
allowable impact fee are shown on Exhibit 5 of the Technical Appendix.
For ease of administration, the recommended maximum allowable charge for an EDU is $3,310.
Based on the impact fee for “1 EDU”, the charges for the various sized service lines would result
in the following impact fees as shown in Table 5-5. Other meter sizes up to 3” are then weighted
based on the American Water Works Association capacity flow ratings.
Table 5-5
City of Bozeman, Montana
Allowable Water System Impact Fees
Meter Size EDU Factor Maximum Allowable
Charge
¾" 1.00 $3,310
1" 2.50 8,275
1-1/2" 5.00 16,550
2" 8.00 26,480
3" 16.00 52,960
Over 3" Calculated
In Table 5-5 the impact fees for the larger meter sizes up to 3” are determined by multiplying the
impact fees for an EDU by the weighting factors. The weighting factors reflect the increased
capacity that the customer can impose on the system and hence the increased cost required to
provide capacity to the customer. For meter sizes over 3”, the impact fee is calculated based on
the actual demand imposed on the water system. A detail discussion of the calculation method is
provided in Exhibit 6.
5.7 Key Assumptions
In the development of the impact fees for the City’s water system, a number of key assumptions
were utilized. These are as follows:
234
Determination of the City’s Water Impact Fees 5-8
City of Bozeman, Montana
The City’s asset records were used to determine the nature and value of existing water
treatment, storage and distribution assets.
The interest rate used for calculating interest on existing investments was 5.0%.
A maximum of 10 years worth of interest was included in the cost of existing plant.
The findings required under MCA 7-6-1602 were provided in the water facility plan and this
report
5.8 Implementation of the Impact Fees
The methodology used to calculate the impact fees takes into account the cost of money or
interest charges and inflation. Therefore, HDR Engineering, Inc. would recommend that the City
adjust the impact fees each year by an escalation factor to reflect the cost of interest and
inflation. The most frequently used source to escalate impact fees is the ENR index which tracks
changes in construction costs for municipal utility projects. This method of escalating the City’s
impact fee should be used for no more than a two-year period. After this time period, as required
by Montana law, the City should update the charges based on the actual cost of infrastructure and
any new planned facilities that would be contained in an updated facility plan or capital
improvement plan.
5.9 Consultant Recommendations
Based on our review and analysis of the City’s water system, HDR Engineering, Inc. makes the
following recommendations:
The City should implement impact fees for new and expanded connections to the water
system that are no greater than the impact fees as set forth in this report.
The City should update the impact fee calculations as required by State law and City
ordinance.
5.10 Summary
The water impact fees developed and presented in this section of the report are based on the
engineering design criteria of the City’s water system, the value of the existing assets, future
capital improvements and “generally accepted” impact fee calculation principles. Adoption of
the proposed impact fees will provide multiple benefits to the system users as well as the City
and create equitable and cost-based charges for new customers connecting to the City’s water
system.
235
TECHNICAL APPENDIX A
WATER IMPACT FEES
236
Water Impact Fees – Calculation Basis
Exhibit 1 – Determination of LOS and Equivalent Dwelling Units
Average Usage per EDU = Average Residential Usage (gpcd) * Persons per Household * loss
factor.
Peak Usage per EDU = Average Usage per EDU * peaking factor
Storage Usage = Total Storage Requirement (million gallons) / EDUs in year of Storage
Requirement
EDUs = Peak Day Flow / Peak Day Usage per EDU
Exhibit 2 – Source of Supply and Water Treatment Plant Impact Fee
Source of Supply and Water Treatment Plant Impact Fee = Impact Fee Costs / Plant Capacity *
Peak Usage per EDU
Exhibit 3 – Distribution Storage Plant Impact Fee
Distribution Storage Plant Impact Fee = Impact Fee Costs / Plant Capacity * Storage Usage per
EDU
Exhibit 4 – Distribution System Impact Fee
Distribution System Impact Fee = Impact Fee Costs / Number New EDUs Served by
Improvements (per Facility Plan)
Exhibit 5 – Water Impact Fee
Administrative Impact Fee = (Treatment Plant Impact Fee + Distribution Storage Impact Fee +
Distribution System Impact Fee) * .05
Water Impact Fee = (Treatment Plant Impact Fee + Distribution Storage Impact Fee
+Distribution System Impact Fee – Water Debt Service Credit) +
Administrative Impact Fee
Water Debt Service Credit
Debt Service Credit = NPV from Year1 to Yearn of Impact Fee Revenue – Annual Debt Service/
ERUs 1 to n
237
City of Bozeman, Montana
Impact Fees for the Water System
Determination of LOS and Equivalent Dwelling Units
Exhibit 1
Average Usage Residential 1 83.04 gpcd
Average Usage Residential with losses 2 88.04
Number of Persons per Household 3 2.3
Average Usage 4 202.49 per EDU
Peak Day Usage 5 465.73 per EDU
Storage Usage 6 213.77 per EDU
1 - See page 14 Section 3.B of the Water Facility Plan - Average of Table 3.B.8.
2 - At 5 gpcd.
3 - See page 6 of Section 2 of the Water Facility Plan.
4 - Average Usage Residential times number of persons per Household.
5 - Average Day Usage times a peaking factor of 2.30 - See page 3 of Section 4.A
of the Water Facility Plan.
6 - Total storage requirement in 2025 divided by 2025 EDUs - See page 26
Section 5.B of the Water Facility Plan.
1 7/18/2007
238
City of Bozeman, Montana
Impact Fees for the Water System
Determination of LOS and Equivalent Dwelling Units
Exhibit 1
Peak Day Equivalent Additional
Year Demand 1 Dwelling Units 2 EDUs
2005 13.08 28,085
2006 13.74 29,492 1,406
2007 14.42 30,969 1,477
2008 15.15 32,519 1,551
2009 15.90 34,148 1,629
2010 16.70 35,858 1,710
2011 17.53 37,649 1,792
2012 18.41 39,531 1,881
2013 19.33 41,506 1,975
2014 20.30 43,579 2,074
2015 21.31 45,756 2,177
2016 22.37 48,035 2,278
2017 23.48 50,426 2,392
2018 24.65 52,937 2,511
2019 25.88 55,572 2,636
2020 27.17 58,339 2,767
2021 28.53 61,257 2,918
2022 29.96 64,321 3,064
2023 31.45 67,539 3,217
2024 33.03 70,917 3,378
2025 34.68 74,464 3,547
1 - See page 3 Section 4.A of the Water Facility Plan.
2 - Peak day demand divided by Peak Day EDU Usage Factor.
2 7/18/2007
239
City of Bozeman, Montana
Impact Fees for the Water System
Source of Supply and Treatment
Exhibit 2
Original Impact Fee Cost
Year Equipment List Cost Related 3 $2007 1,2
Existing Assets 1
2003 BIO-CAP ON PONDS 13,229$ 32% 5,146$
1990 BOZEMAN CREEK 86,756 32% 45,221
1990 BOZEMAN CREEK HOUSE 45,322 32% 23,624
1990 BOZEMAN CREEK INTAKE MAIN 117,721 32% 61,362
1990 BOZEMAN CREEK OTHER 26,419 32% 13,771
1990 BOZEMAN CREEK WATER SUPPLY 433,589 32% 226,007
2000 CORROSION CONTROL BUILDING 155,487 32% 70,011
1990 LYMAN CREEK INTAKE 50,362 0% -
2003 PORTABLE CABIN 26,723 32% 10,394
1990 PRESEDIMENT BASIN 122,782 0% -
1990 RESERVOIR SUPPLY MAIN 467,936 32% 243,910
2000 CREEK SUPPLY 84,079 32% 37,858
1990 SOUTH BASIN 214,101 32% 111,599
1990 WATER PLANT 101,539 0% -
1990 WATER PLANT EXPANSION 756,712 0% -
1990 WATER TREATMENT PLANT 260,522 0% -
1990 WATER TREATMENT PLANT 2,880,746 0% -
Total Existing Assets 848,903$
Future Construction Projects 2
2008 LYMAN - GROUNDWATER COLLECTION 699,758 100% 742,373
2011 WATER PLANT DESIGN 200,000 32% 67,898
2012 WATER PLANT DESIGN 3,000,000 32% 1,018,464
After 2012 22 MGD MEMBRANE WATER TREATMENT PLANT 30,000,000 32% 10,184,640
After 2012 SOURDOUGH CREEK DAM CONSTRUCTION 4 4,000,000 100% 4,243,600
Total Future Construction Projects 16,256,975$
Total Source of Supply and Treatment 17,105,878$
Plant Capacity (MGD) 3 7.00
Cost per Gallon 2.44$
Requirement per EDU 465.73
Impact Fee Source of Supply and Treatment per EDU 1,138.09$
1 - Existing plant is increased by interest charges from the date of construction up to 10 years.
2 - Future plant is increased from 2005 construction costs by the rate of inflation.
3 - New membrane water treatment plant capacity allocated to new development.
Based on current plant capacity of 15 MDG to new capacity (22 MGD).
4 - Includes only permitting and design.
7/18/2007
240
City of Bozeman, Montana
Impact Fees for the Water System
Distibution Storage
Exhibit 3
Original Impact Fee Cost
Year Equipment List Cost Related 3 $2007 1,2
Existing Assets 1
1957 4 MG SOURDOUGH TANK 431,644$ 0% -$
1985 2 MG HILLTOP TANK (STEEL) 826,421 0% -
1989 5.3 MG LYMAN RESERVOIR (CONCRETE) 2,539,683 100% 4,136,875
Total Existing Assets 4,136,875$
After 2012 5.3 MG STORAGE RESERVIOR 5,300,000$ 100% 5,622,770$
Total Distrubution Storage 9,759,645$
Plant Capacity (MGD)10.60
Cost per Gallon 0.92$
Requirement per EDU 213.77
Impact Fee Distribution Storage per EDU 196.82$
1 - Existing plant is increased by interest charges from the date of construction up to 10 years.
2 - Future plant is increased from 2005 construction costs by the rate of inflation.
3- Both the Lyman and new reservior are available to serve new development.
7/18/2007
241
City of Bozeman, Montana
Impact Fees for the Water System
Transmission/Distribution Mains
Exhibit 4
Original Impact Fee Cost
Year Equipment List Cost Related 3 $2007 1,2
Existing Assets 1
1910
1910 4" 28,378$ 0.00% -$
1910 6" 219,237 0.00% -
1910 8" 37,098 0.00% -
1910 10" 23,514 0.00% -
1910 12" 38,965 0.00% -
1910 14" 52,604 0.00% -
1910 16" - 0.00% -
1910 18" 185,927 0.00% -
1910 20" - 0.00% -
1910 24" - 0.00% -
1910 30" - 0.00% -
1920
1920 4" 91,425$ 0.00% -$
6" 367,726 0.00% -
8" 32,465 0.00% -
10" 43,259 0.00% -
12" 46,738 0.00% -
14" 37,033 0.00% -
16" 54,720 0.00% -
18" 292,024 0.00% -
20" - 0.00% -
24" - 0.00% -
30" - 0.00% -
1930
1930 4" 90,032$ 0.00% -$
1930 6" 139,736 0.00% -
1930 8" 7,348 0.00% -
1930 10" - 0.00% -
1930 12" - 0.00% -
1930 14" - 0.00% -
1930 16" - 0.00% -
1930 18" - 0.00% -
1930 20" - 0.00% -
1930 24" - 0.00% -
1930 30" - 0.00% -
1940
1940 4" 37,858$ 0.00% -$
1940 6" 164,835 0.00% -
1940 8" - 0.00% -
1940 10" - 62.28% -
1940 12" - 62.28% -
1940 14" - 62.28% -
1940 16" - 62.28% -
1940 18" - 62.28% -
1940 20" - 62.28% -
1940 24" - 62.28% -
1940 30" - 62.28% -
1950
1950 4" 49,058$ 0.00% -$
1950 6" 214,442 0.00% -
1950 8" 64,513 0.00% -
1950 10" 225,423 62.28% 228,700
1950 12" 38,259 62.28% 38,815
1950 14" 322,807 62.28% 327,500
1950 16" - 62.28% -
1950 18" - 62.28% -
1950 20" - 62.28% -
1950 24" 695,286 62.28% 705,393
1950 30" - 62.28% -
1 7/18/2007
242
City of Bozeman, Montana
Impact Fees for the Water System
Transmission/Distribution Mains
Exhibit 4
Original Impact Fee Cost
Year Equipment List Cost Related 3 $2007 1,2
1960
1960 4" -$ 0.00% -$
1960 6" 940,152 0.00% -
1960 8" 336,859 0.00% -
1960 10" 107,445 62.28% 109,007
1960 12" 42,881 62.28% 43,505
1960 14" 83,499 62.28% 84,712
1960 16" - 62.28% -
1960 18" - 62.28% -
1960 20" - 62.28% -
1960 24" - 62.28% -
1960 30" - 62.28% -
1970
1970 4" 57,266$ 0.00% -$
1970 6" 1,583,458 0.00% -
1970 8" 1,232,305 0.00% -
1970 10" 768,899 62.28% 780,076
1970 12" 821,434 62.28% 833,374
1970 14" 301,728 62.28% 306,114
1970 16" - 62.28% -
1970 18" - 62.28% -
1970 20" - 62.28% -
1970 24" 140,402 62.28% 142,443
1970 30" - 62.28% -
1980
1980 4" 160,885$ 0.00% -$
1980 6" 2,296,590 0.00% -
1980 8" 1,225,596 0.00% -
1980 10" 1,722,195 62.28% 1,747,229
1980 12" 1,062,913 62.28% 1,078,364
1980 14" 374,141 62.28% 379,580
1980 16" - 62.28% -
1980 18" 36,028 62.28% 36,551
1980 20" 134,255 62.28% 136,207
1980 24" 507,479 62.28% 514,856
1980 30" 2,805,243 62.28% 2,846,022
1990
1990 4" 333,459$ 0.00% -$
6" 7,933,609 0.00% -
8" 11,846,645 0.00% -
10" 4,809,170 62.28% 4,879,078
12" 6,357,085 62.28% 6,449,494
14" 692,617 62.28% 702,685
16" 705,443 62.28% 715,697
2 7/18/2007
243
City of Bozeman, Montana
Impact Fees for the Water System
Transmission/Distribution Mains
Exhibit 4
Original Impact Fee Cost
Year Equipment List Cost Related 3 $2007 1,2
18" 155,384 62.28% 157,643
20" - 62.28% -
24" 755,379 62.28% 766,360
30" - 62.28% -
2000
2000 4" 116,617$ 0.00% -$
2000 6" 91,366 0.00% -
2000 8" 24,837,024 0.00% -
2000 10" 1,528,730 62.28% 1,339,770
2000 12" 8,280,156 62.28% 7,256,685
2000 14" 151,169 62.28% 132,484
2000 16" - 62.28% -
2000 18" - 62.28% -
2000 20" - 62.28% -
2000 24" 122,108 62.28% 107,015
2000 30" 90,890 62.28% 79,656
Total Existing Assets 32,925,015$
EDUs added 2005 to 2025 46,379
Total Existing Transmission/Distribution Impact Fee per EDU 709.91$
Future Construction Projects 2
2008 SHOPS COMPLEX - PHASE 1 4,995,000$ 19.82% 990,009$
2007-2037 REDUNDANCY - 10 inch 4, 5 296,438 22.42% 70,516
2007-2037 REDUNDANCY - 12 inch 4, 5 2,855,651 34.60% 1,048,291
2007-2037 REDUNDANCY - 14 inch 4, 5 1,629,291 41.95% 725,046
2007-2037 REDUNDANCY - 16 inch 4, 5 2,303,886 46.71% 1,141,751
2007-2037 REDUNDANCY - 24 inch 4, 5 1,101,716 55.36% 647,092
2007-2037 REDUNDANCY - 36 inch 4, 6 3,481,785 19.03% 702,977
2007-2038 REDUNDANCY - 48 inch 4, 6 16,187,712 37.95% 6,518,073
2007-2038 FUTURE TRANSMISSION - 8 inch5 187,746 0.00% -
2007-2038 FUTURE TRANSMISSION - 10 inch5 4,939,960 36.00% 1,886,689
2007-2038 FUTURE TRANSMISSION - 12 inch5 12,973,987 55.56% 7,646,724
2007-2038 FUTURE TRANSMISSION - 16 inch5 5,531,134 75.00% 4,400,985
2007-2038 FUTURE TRANSMISSION - 18 inch5 6,983,839 80.25% 5,945,618
2007-2038 FUTURE TRANSMISSION - 20 inch5 2,357,129 84.00% 2,100,570
2007-2038 FUTURE TRANSMISSION - 24 inch5 9,969,779 88.89% 9,401,723
2007-2038 FUTURE TRANSMISSION - 36 inch5 3,545,692 95.06% 3,575,865
2007-2038 FUTURE TRANSMISSION - 42 inch5 4,353,045 96.37% 4,450,594
Total Future Construction Projects 51,252,523$
EDUs added 2005 to 2025 46,379
Total Future Transmission/Distribution Impact Fee per EDU 1,105.08$
Total Transmission/Distribution Impact Fee per EDU 1,814.99$
1 - Existing plant is increased by interest charges from the date of construction up to 10 years.
2 - Future plant is increased from 2005 construction costs by the rate of inflation.
3- All 4", 6" and 8" lines excluded and pipe greater that 75 years old.
Allocation for existing plant based on new EDUs/total EDUs in 2025. Future plant allocation based on Water Facility plan.
4 - See Table 5.B.3 in the Water Facility Plan. Allocated based on new EDUs/total EDUs in 2025.
5 - See Table 5.B.5 in the Water Facility Plan. All 8" line assumed to be built by development.
6 - All water treament plant redundency greater than 30" excluded from the impact fee calculation.
3 7/18/2007
244
City of Bozeman, Montana
Impact Fees for the Water System
Summary
Exhibit 5
Source of Supply $ 1,138.09
Storage 196.82
Distribution 1,814.99
Debt Service Credit -
Total $3,149.90
Plus: Maximum Allowable of 5% 157.50
$3,307.40
Impact Fees by Meter Size (inches)
Meter Size
Weighting
Factor 1 Impact Fee
3/4" 1.00 $3,310
1 2.50 8,275
1 1/2 5.00 16,550
2 8.00 26,480
3 16.00 52,960
Over 3"Calculated
1 - Weighting factor based on AWWA meter capacity ratings
Water Impact Fee Calculation Results
Proposed Water Impact Fee per EDU
7/18/2007]
245
Page 1
Exhibit 6
Calculation Method for Large Service Line Sizes - Water
Net Impact Fee
Once all the components have been calculated for the impact fee, the net impact fee can be
determined. The net impact fee is merely the sum of the various impact fee elements. This charge is
calculated on an equivalent residential unit basis. The cost for varying service line sizes is calculated
based on the equivalent weighting factor for these service line sizes. Table 1 provides a summary of
the calculation of the net impact fee.
Table 1
Allowable Water Impact Fee
Description Impact Fee
Source of Supply and Treatment $1,138.09
Distribution Storage 196.82
Distribution Main 1,814.99
Debt Service Credit 0.00
Administrative Charge 157.50
Total $3,307.40
Meter Size Weighting Factor Charge
3/4” 1.00 3,310
1" 2.50 8,275
1 1/2" 5.00 16,550
2” 8.00 26,480
3” 16.00 52,960
4 25.00 82,750
6 50.00 165,500
8 80.00 264,800
The use of weighting factors can result in an under collection of the impact fee for larger industrial
customers who utilize the system in a manner far different from the average user. This is due to the
fact that in the determination of the impact fees, average system usage is used as the design criteria.
The design criteria as shown in Table 2, has been utilized in the calculation of the impact fees.
246
Page 2
Table 2
Impact Fee Design Criteria
Peak Day Flow 465.73 gallons/day/EDU
Average Day Flow 202.49 gallons/day/EDU
Storage Requirements 213.77 gallons/day/EDU
To the extent that a customer takes water service different from the system average, a large shortfall in
impact fee revenue can result. This is especially true for large service line sizes used by industrial
customers.
An example is an industrial customer with an 8” service. This type of line can allow a flow of 1,600
gallons per minute or approximately 2.3 mgd. If the large industrial customer were going to utilize the
system such that the valve is opened up to its maximum flow capacity 365 days per year, it would be
necessary for the City to construct approximately 2.3 mgd of source capacity. Based on current costs
of $2.44 per gallon, it would cost approximately $5,600,000 just to construct 2.3 mgd in source
capacity. This compares to an impact fee charge using weighting factors for an 8” service line of
$284,400. This is only a comparison of source of supply cost to the total impact fee using weighting
factors and does not include the other impact fee components. This large difference is due to the fact
that the average customer only uses approximately 2% of the water, on the peak day, which could
actually flow through the service line.
Given the ability of large customers to impose far greater costs on the system it is recommended that
impact fees for meter sizes over 3 inches be calculated based on the actual or anticipated EDU’s. This
assures that the utility collects funds through the impact fees equal to the cost of providing the service
and at the same time not impose a large administrative burden on the utilities staff associated with
calculation of impact fees.
For meter sizes greater than three (3) inches, the customer’s usage would be calculated based on
storage use and peak day use. From these criteria, the number of EDUs for peak day use and storage
use would be determined. These equivalent dwelling units would then be multiplied by the charge per
EDU as specified under the impact fee charges to determine the total impact fee charge. Two
components are calculated due to the fact that peak day usage is used as the design criteria for the
majority of the utilities; however, the amount of storage requirement is based on a separate design
criteria. Provided in Table 3 are the details of calculation of EDUs for peak day use and storage use.
247
Page 3
Table 3
Determination of EDUs
Peak Day EDUs = Peak Day Usage (gpd)/465.73 (gpd/EDU)
Storage EDUs = (Average Day Usage x 1.06) (gpd)/213.77 (gpd/EDU)
The storage requirement is determined by multiplying average use by 1.06 (213.77/202.49). This
calucaltion is based on the assumption that the storage requirement is proportional to the average day
use.
These factors would then be multiplied by the peak day impact fee per EDU and the storage cost per
EDU. These are detailed in Table 4.
Table 4
Impact Fee Charges
Peak Day Impact Fee Cost = $3,103 /peak day EDU
Total Storage Impact Fee Cost = $207 /storage EDU
The resultant product of the EDUs and impact fee costs would be the total impact fee charged. The
charge would not depend on the meter size for customers greater than 3 inches, but on the customer’s
usage.
248
Page 4
Sample Resolution Language
Section 3(b): The impact fee is calculated for a 3/4”service line. The impact fee for meter sizes up
to 3” is determined by multiplying the impact fee for a meter by a weighting factor.
The impact fee for meter sizes up to 3 inches is:
Meter Size Weighting Factor (EDUs) Charge
3/4” 1.00 $3,310
1” 2.50 8,275
1-1/2” 5.00 16,550
2” 8.00 26,480
3” 16.00 52,960
Section 3(c): For service lines over 3”, the impact fee shall be determined based on the customers
anticipated water usage. Anticipated peak day water usage will be divided by the peak day system
design flow of 465.73 gallons per day per EDU to determined peak day EDUs. Anticipated average
daily water usage will be multiplied by 1.06 and then divided by 213.77 gallons per day per EDU to
determine storage EDUs.
Peak day impact fee cost is: $3,103 per peak day EDU
Storage impact fee cost is: $ 207 per storage EDU
The impact fee shall be the sum of the peak day impact fee cost per EDU multiplied by the peak day
EDUs and the storage impact fee cost per EDU multiplied by the storage EDUs.
Section 3(d): The impact fee paid for service lines larger than 3 inches as of the effective date of this
resolution may be adjusted based on actual usage. If usage is greater than 110% of anticipated volume
during a 12 month period of time, an additional impact fee may be charged, using the same techniques
for calculating peak day and storage EDUs and multiplying by the peak day impact fee cost per EDU
and the storage impact fee cost per EDU then in effect.
249
TECHNICAL APPENDIX B
MONTANA CODE
250
7-6-1601. Definitions. As used in this part, the following definitions apply:
(1) (a) "Capital improvements" means improvements, land, and equipment with a useful life of 10 years or more that
increase or improve the service capacity of a public facility.
(b) The term does not include consumable supplies.
(2) "Connection charge" means the actual cost of connecting a property to a public utility system and is limited to
the labor, materials, and overhead involved in making connections and installing meters.
(3) "Development" means construction, renovation, or installation of a building or structure, a change in use of a
building or structure, or a change in the use of land when the construction, installation, or other action creates
additional demand for public facilities.
(4) "Governmental entity" means a county, city, town, or consolidated government.
(5) (a) "Impact fee" means any charge imposed upon development by a governmental entity as part of the
development approval process to fund the additional service capacity required by the development from which it is
collected. An impact fee may include a fee for the administration of the impact fee not to exceed 5% of the total impact
fee collected.
(b) The term does not include:
(i) a charge or fee to pay for administration, plan review, or inspection costs associated with a permit required for
development;
(ii) a connection charge;
(iii) any other fee authorized by law, including but not limited to user fees, special improvement district
assessments, fees authorized under Title 7 for county, municipal, and consolidated government sewer and water
districts and systems, and costs of ongoing maintenance; or
(iv) onsite or offsite improvements necessary for new development to meet the safety, level of service, and other
minimum development standards that have been adopted by the governmental entity.
(6) "Proportionate share" means that portion of the cost of capital system improvements that reasonably relates to
the service demands and needs of the project. A proportionate share must take into account the limitations provided in
7-6-1602.
(7) "Public facilities" means:
(a) a water supply production, treatment, storage, or distribution facility;
(b) a wastewater collection, treatment, or disposal facility;
(c) a transportation facility, including roads, streets, bridges, rights-of-way, traffic signals, and landscaping;
(d) a storm water collection, retention, detention, treatment, or disposal facility or a flood control facility;
(e) a police, emergency medical rescue, or fire protection facility; and
(f) other facilities for which documentation is prepared as provided in 7-6-1602 that have been approved as part of
an impact fee ordinance or resolution by:
(i) a two-thirds majority of the governing body of an incorporated city, town, or consolidated local government; or
(ii) a unanimous vote of the board of county commissioners of a county government.
History: En. Sec. 1, Ch. 299, L. 2005.
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7-6-1602. Calculation of impact fees -- documentation required -- ordinance or resolution -- requirements for
impact fees. (1) For each public facility for which an impact fee is imposed, the governmental entity shall prepare and
approve documentation that:
(a) describes existing conditions of the facility;
(b) establishes level of service standards;
(c) forecasts future additional needs for service for a defined period of time;
(d) identifies capital improvements necessary to meet future needs for service;
(e) identifies those capital improvements needed for continued operation and maintenance of the facility;
(f) makes a determination as to whether one service area or more than one service area is necessary to establish a
correlation between impact fees and benefits;
(g) makes a determination as to whether one service area or more than one service area for transportation facilities is
needed to establish a correlation between impact fees and benefits;
(h) establishes the methodology and time period over which the governmental entity will assign the proportionate
share of capital costs for expansion of the facility to provide service to new development within each service area;
(i) establishes the methodology that the governmental entity will use to exclude operations and maintenance costs
and correction of existing deficiencies from the impact fee;
(j) establishes the amount of the impact fee that will be imposed for each unit of increased service demand; and
(k) has a component of the budget of the governmental entity that:
(i) schedules construction of public facility capital improvements to serve projected growth;
(ii) projects costs of the capital improvements;
(iii) allocates collected impact fees for construction of the capital improvements; and
(iv) covers at least a 5-year period and is reviewed and updated at least every 2 years.
(2) The data sources and methodology supporting adoption and calculation of an impact fee must be available to the
public upon request.
(3) The amount of each impact fee imposed must be based upon the actual cost of public facility expansion or
improvements or reasonable estimates of the cost to be incurred by the governmental entity as a result of new
development. The calculation of each impact fee must be in accordance with generally accepted accounting principles.
(4) The ordinance or resolution adopting the impact fee must include a time schedule for periodically updating the
documentation required under subsection (1).
(5) An impact fee must meet the following requirements:
(a) The amount of the impact fee must be reasonably related to and reasonably attributable to the development's
share of the cost of infrastructure improvements made necessary by the new development.
(b) The impact fees imposed may not exceed a proportionate share of the costs incurred or to be incurred by the
governmental entity in accommodating the development. The following factors must be considered in determining a
proportionate share of public facilities capital improvements costs:
(i) the need for public facilities capital improvements required to serve new development; and
(ii) consideration of payments for system improvements reasonably anticipated to be made by or as a result of the
development in the form of user fees, debt service payments, taxes, and other available sources of funding the system
improvements.
(c) Costs for correction of existing deficiencies in a public facility may not be included in the impact fee.
(d) New development may not be held to a higher level of service than existing users unless there is a mechanism in
place for the existing users to make improvements to the existing system to match the higher level of service.
(e) Impact fees may not include expenses for operations and maintenance of the facility.
History: En. Sec. 2, Ch. 299, L. 2005.
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7-6-1603. Collection and expenditure of impact fees -- refunds or credits -- mechanism for appeal required.
(1) The collection and expenditure of impact fees must comply with this part. The collection and expenditure of impact
fees must be reasonably related to the benefits accruing to the development paying the impact fees. The ordinance or
resolution adopted by the governmental entity must include the following requirements:
(a) Upon collection, impact fees must be deposited in a special proprietary fund, which must be invested with all
interest accruing to the fund.
(b) A governmental entity may impose impact fees on behalf of local districts.
(c) If the impact fees are not collected or spent in accordance with the impact fee ordinance or resolution or in
accordance with 7-6-1602, any impact fees that were collected must be refunded to the person who owned the property
at the time that the refund was due.
(2) All impact fees imposed pursuant to the authority granted in this part must be paid no earlier than the date of
issuance of a building permit if a building permit is required for the development or no earlier than the time of
wastewater or water service connection or well or septic permitting.
(3) A governmental entity may recoup costs of excess capacity in existing capital facilities, when the excess
capacity has been provided in anticipation of the needs of new development, by requiring impact fees for that portion of
the facilities constructed for future users. The need to recoup costs for excess capacity must have been documented
pursuant to 7-6-1602 in a manner that demonstrates the need for the excess capacity. This part does not prevent a
governmental entity from continuing to assess an impact fee that recoups costs for excess capacity in an existing
facility. The impact fees imposed to recoup the costs to provide the excess capacity must be based on the governmental
entity's actual cost of acquiring, constructing, or upgrading the facility and must be no more than a proportionate share
of the costs to provide the excess capacity.
(4) Governmental entities may accept the dedication of land or the construction of public facilities in lieu of
payment of impact fees if:
(a) the need for the dedication or construction is clearly documented pursuant to 7-6-1602;
(b) the land proposed for dedication for the public facilities to be constructed is determined to be appropriate for the
proposed use by the governmental entity;
(c) formulas or procedures for determining the worth of proposed dedications or constructions are established as part
of the impact fee ordinance or resolution; and
(d) a means to establish credits against future impact fee revenue has been created as part of the adopting ordinance
or resolution if the dedication of land or construction of public facilities is of worth in excess of the impact fee due
from an individual development.
(5) Impact fees may not be imposed for remodeling, rehabilitation, or other improvements to an existing structure or
for rebuilding a damaged structure unless there is an increase in units that increase service demand as described in 7-6-
1602(1)(j). If impact fees are imposed for remodeling, rehabilitation, or other improvements to an existing structure or
use, only the net increase between the old and new demand may be imposed.
(6) This part does not prevent a governmental entity from granting refunds or credits:
(a) that it considers appropriate and that are consistent with the provisions of 7-6-1602 and this chapter; or
(b) in accordance with a voluntary agreement, consistent with the provisions of 7-6-1602 and this chapter, between
the governmental entity and the individual or entity being assessed the impact fees.
(7) An impact fee represents a fee for service payable by all users creating additional demand on the facility.
(8) An impact fee ordinance or resolution must include a mechanism whereby a person charged an impact fee may
appeal the charge if the person believes an error has been made.
History: En. Sec. 3, Ch. 299, L. 2005.
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7-6-1604. Impact fee advisory committee. (1) A governmental entity that intends to propose an impact fee
ordinance or resolution shall establish an impact fee advisory committee.
(2) An impact fee advisory committee must include at least one representative of the development community and
one certified public accountant. The committee shall review and monitor the process of calculating, assessing, and
spending impact fees.
(3) The impact fee advisory committee shall serve in an advisory capacity to the governing body of the
governmental entity.
History: En. Sec. 4, Ch. 299, L. 2005.
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