Staff recommends the City Council grant a waiver to Billings, Montana City Code (BMCC), Sections 26-203 and 26-204 to provide sanitary sewer service to the expanded Lockwood Targeted Economic Development District (TEDD) and approve the first amendment to the wastewater agreement with Lockwood Water and Sewer District contingent on property owners in the TEDD approving the expansion and the Lockwood Water and Sewer District Board approving the expansion and the amendment to the agreement. 

The Lockwood Targeted Economic Development District (TEDD) was created in 2016 by Yellowstone County to develop planned, ready-to-go industrial space. In 2018, the TEDD was expanded to include additional properties. It currently encompasses 1,194 acres in the area between the Yellowstone River and Interstate 90, north of Lockwood and east of Billings Heights. Only about 468 of these acres are developable. The development of the Lockwood TEDD cannot move forward without the provision of wastewater service to the area. Three options for wastewater service were studied, including a package plant option, individual septic systems, and discharging to the City of Billings wastewater treatment plant. The best and most feasible option was determined to be discharging wastewater from the TEDD to the City.  

The Billings, Montana City Code (BMCC), Section 26-203 requires that the property at the time of application for sanitary sewer service be contiguous to the boundary of the service area, entirely within the Red area on the Limits of Annexation Map, and entirely within the City's facilities planning area.  This section also requires that the applicant complete the annexation requirements outlined in BMCC, Section 26-204.  These requirements include annexation or attempt at annexation in order to obtain water or sewer service to a property, although a "waiver of right to protest annexation" may be accepted in lieu of annexation at the City's discretion.  However, per BMCC, Section 26-207, City Council can waive the requirements of BMCC, Sections 26-203 and 26-204 by a simple majority vote after holding a public hearing. 

The City has had an agreement with the Lockwood Water and Sewer District (LWSD) since 2008 which allows LWSD to discharge to the City's wastewater plant. This agreement has a provision that LWSD cannot expand its service area without the consent of the City. The Lockwood TEDD is located outside of the existing service area, and thus, requires the consent of the City to include this area in LWSD's service area. The attached amendment to the agreement between LWSD and the City expands the service area to include the Lockwood TEDD. In return for the expansion of the service area, the City is requiring an 18% surcharge on monthly revenues from the TEDD.  The current agreement provides for a 6% surcharge on monthly revenues from the original service area and this 6% surcharge will remain in effect for the original Lockwood service area. This additional fee is in recognition of the risk the City is taking on with unkown capacity and strength demands of the industrial TEDD area.  The amendment to the agreement also provides for a decrease in LWSD's requirement for a financial guarantee bond from $1 million to $500,000 as LWSD has never defaulted on any of its obligations required in the agreement and has improved its financial status significantly since the inception of the agreement in 2008. 

Additionally, the service challenges highlighted in the Lockwood TEDD situation has led the City of Billings and Yellowstone County to work together to develop an intergovernmental agreement to outline a formal, cooperative approach to transportation, development, utility extension, land use, and annexation along the City-County boundaries including, but not limited to, the following areas:

• The Inner Belt Loop Corridor
• Airport Corridor/Highway 3
• Area around upcoming new west end reservoir and plant
• Metrapark - EBURD
• Zoo Drive area/I-90 Interchange
• Billings Bypass North Corridor/East Billings Heights

If the City and County can work together to prevent future development conflicts at the City-County borders, opportunities will increase for Billings and Yellowstone County to capitalize on high quality, economically sustainable residential and commercial development.  The City and County are at the beginning stages of discussions on how the two entities can work together on these issues and County Commissioners and City Council Members must be the key participants in these efforts. As a first step of mutual cooperation, the attached letter signed by the County Commissioners demonstrates the Commissioners willingness to move forward with developing an interlocal agreement specifically for the area along the Inner Belt Loop Corridor as a first step to cooperative planning efforts along the City-County borders.  It is anticipated that after a series of discussions and coordination, a draft intergovernmental agreement will be presented to the City Council and County Commissioners at future meetings.

Considering these provisions outlined above in exchange for waiving the annexation requirements of the TEDD and approving the amendment to the agreement with LWSD, it will be mutually beneficial for the City and LWSD to move forward with the amendment to the wastewater service agreement.  Accordingly, the City Council is being asked to consider waiving the requirements of BMCC, Sections 26-203 and 26-204 regarding petitions for service and annexation, and approving the amendment to the agreement between LWSD and the City.   However, If the City provides LWSD water in the future to either serve its existing service area or the TEDD, it is expected that the City will require annexation or waivers of annexation as part of any future negotiated water service agreement.  

During a Council Work Session on April 1, 2019, representatives from Big Sky Economic Development (BSED) and Lockwood Water and Sewer District (LWSD) presented on the background of the Targeted Economic Development District (TEDD) and extending LWSD's service area to include the TEDD.  Again on February 18, 2020, the LWSD,  BSED, and a representative from the TEDD advisory Board presented the history and the background of the TEDD to City Council and asked that the service area for LWSD be expanded without annexation or waivers of annexation.  The last public meeting regarding the TEDD occurred on July 20, 2020 during a City Council Work Session in which staff presented a proposal to meet the requirements of LWSD with additional provisions being met.

LWSD, BSED, the County, as well as all City customers currently receiving wastewater service and considered "owners" of the system, are all stakeholders in this process.

The City Council may:

• Grant a waiver to BMCC, Sections 26-203 and 26-204 to provide sanitary sewer service to the Lockwood TEDD without annexation and approve the amendment to the agreement with Lockwood Water and Sewer District contingent on the property owners in the TEDD approving the expansion and the Lockwood Water and Sewer District Board approving the expansion and amendment to the agreement; or 
• Not approve the waiver or the amendment.  If not approved, the City would not be able to provide sanitary service to the Lockwood TEDD.

At current rates charged to Lockwood Water and Sewer District, the additional annual revenues to the wastewater fund from the TEDD upon full build out are estimated to be $158,220.  However, the rates are calculated on an on-going basis per a cost of service rate study and adjusted annually.  It is unknown what the strengths of the flows from the TEDD will be, but because it is an industrial area, it is likely the strengths of the flows will increase which will increase the overall rates charged by the City to LWSD.