Recommend City Council Approval of Funding Program for Variolite Street Reconstruction, Improvement Project #20-01

Purpose:
The purpose of this case is to provide a recommendation to the City Council for approval of a funding program for Variolite Street Reconstruction, Improvement Project #20-01.

Background:
The 2.24-mile segment of Variolite Street between Alpine Drive and 173rd Avenue is proposed to be reconstructed in 2020.  The pavement on this segment of Variolite Street is in poor condition (2018 average PASER rating of 4).  Only 13 properties have direct access to this segment of Variolite Street and would therefore receive special benefit from the proposed improvements and could therefore be assessed a portion of the costs.
 
The estimated project cost for reconstructing this segment of Variolite Street is $2,643,600, of which $315,330 is estimated to be funded through Stormwater Funds.  This leaves an estimated $2,328,270 unfunded.  Municipal State Aid System funds are available to pay for the reconstruction of Variolite Street in 2020 since Variolite Street is an MSA route.  In addition, approximately $203,000 is available from the unexpended street reconstruction funds as recently discussed.
 
From 2015 through 2019, street reconstruction and overlay project funding programs included levying special assessments against benefiting properties to cover up to 25% of eligible project costs in compliance with applicable provisions of the City Charter, the City’s adopted Special Assessments Policy, and Minnesota Statute Chapter 429.
 
When special assessments pay for a portion of the project costs, the first step in the project development process is to request Council authorization to prepare a Feasibility Report.  The Feasibility Report explores numerous aspects of the proposed improvements including whether they are feasible, necessary and cost-effective, and whether they should be completed alone or in conjunction with other improvements.  Estimated project costs and a project funding program are also developed in greater detail than what was used to estimate costs and funding sources for the Capital Improvement Program.  A preliminary project schedule is also developed within the Feasibility Report.
 
Over the last five years, Staff have typically started to develop street reconstruction and overlay projects for the following year in July or August based on workload and the scope of the projects.  This is because special assessments were used to pay for a portion of the project costs. Later that fall Staff requests City Council acceptance of the Feasibility Report and authorization to prepare plans and specifications.  Plans are then approved during the winter and the project is bid over the winter so construction can begin in the spring.
 
The City does not currently have an adopted 5-year Street Reconstruction and Overlay Program identifying projects that are eligible for bonding to allow the use of special assessments to pay for a portion of project costs.  However, the City’s adopted Special Assessments Policy is still valid and can be used to guide the City in applying special assessments to street reconstruction and overlay projects when bonding is not needed.
 
On July 16, 2019, the Public Works Committee provided consensus direction for staff to proceed on development of the Variolite Street reconstruction project for 2020.  However, during that meeting it was discussed that the Committee would consider whether special assessments should be used to pay for a portion of project costs at a later date.
 
On September 10, 2019, Staff received City Council authorization for Hakanson Anderson to complete topographic survey work, and for Northern Technologies, Inc. to prepare a geotechnical report, including the completion of 61 soil borings and pavement corings.
 
Staff is now requesting that the Public Works Committee discuss whether special assessments should be used to pay for a portion of the project costs, and then provide a recommendation to the City Council on whether special assessments should be part of the funding program and, if so, in what amount.  If assessments are to be included in the funding program for this project, Staff will need to start working on the Feasibility Report as soon as possible. 

Staff estimates 20 minutes will be required to present this case and address questions.

Observations:

Staff is requesting a recommendation from the Public Works Committee to the City Council regarding whether special assessments should be included as a funding source for the reconstruction of Variolite Street in 2020 and, if so, in what amount.

 

Alternatives:
 

Alternative #1: Motion recommending City Council approval of a funding program for the Variolite Street Reconstruction project, Improvement Project #20-01, including special assessments in the amount of $5,000 per benefiting property.

Alternative #2: Motion recommending City Council approval of a funding program for the Variolite Street Reconstruction project, Improvement Project #20-01, including special assessments in the amount of $_____ per benefiting property.

Alternative #3: Motion recommending City Council approval of a funding program for the Variolite Street Reconstruction project, Improvement Project #20-01, not including special assessments.

Staff proposes the following funding program for this project:

• Municipal State Aid (MSA) funds – MSA funds are proposed to pay for the majority of project costs, and will pay for the portion of project costs ultimately proposed to be recovered from special assessment payments.
• Stormwater Management/Utility Funds – SWM/SWU funds are proposed to pay for all stormwater related project costs using a 50/50 split.
• Special Assessments – Assessments are proposed to be levied at a flat rate of $5,000 per benefiting property.

Staff recommends Alternative #1.  Levying special assessments on the 13 properties with direct access to Variolite Street will ensure that the City does not set a precedent whereby benefiting property owners on future street reconstruction and overlay projects could object to being specially assessed.  Based on the results of Special Benefit Consultation Reports completed on past projects, Staff proposes to levy assessments in the amount of $5,000 per benefiting property.  Staff believes this amount is reasonable, and that it can be legally defended, if needed.

Staff would support Alternative #2 if an assessment amount is chosen that is reasonable and can be legally defended.

Motion recommending City Council approval of a funding program for the Variolite Street Reconstruction project, Improvement Project #20-01, including special assessments in the amount of $5,000 per benefiting property.