Introduce Ordinance #13-17 to Amend 2013 Rates and Fees Related to Water Trunk and Existing Reimbursement Agreement and Call for Public Hearing

The proposed ordinance is to amend the 2013 Water Trunk Fee to create a two (2) tier fee. A second tier of water trunk fee is required in order to honor an existing reimbursement agreement with 21st Century Bank related to the extension of sanitary sewer and water trunk lines to the BROOKFIELD and SWEETBAY RIDGE developments. The original developer of BROOKFIELD paid the capital costs to extend the northwest water loop. The City entered into a reimbursement agreement with the Developer that future trunk fees in the reimbursement area would be credited to the Developer. In this case, there is an essential nexus between the fee and the actual capital costs of construction to be reimbursed. With any City fee, there needs to be a reasonable nexus between the two in order to establish the fee.

On September 23, 2005, the City Council approved a Preliminary Plat for the BROOKFIELD ADDITION, a 241 lot Major Subdivision located along Nowthen Boulevard (CSAH 5), north of 167th Avenue. The Preliminary Plat has been phased over three (3) phases, with additional phases remaining to be completed.

On June 13, 2006, the City Council Approved the Preliminary Plat for SWEETBAY RIDGE, a 165 lot Major Subdivision located along Variolite Street and 161st Avenue. The Plat has completed one (1) of three (3) planned phases.

In order to service both of these developments, the Developer entered into a Reimbursement Agreement on March 22, 2006 with the City and the Developer subsequently agreed to construct municipal Sanitary Sewer and Water Trunk lines. The Reimbursement Agreement allows the Developer to be reimbursed through future trunk fee payments. The capital cost was approximately $6,000,000 paid by the Developer. In December, 2009, the Reimbursement Agreement was re-assigned to 21st Century Bank. The Reimbursement Agreement states that the City will not collect Sanitary Sewer or Water Trunk Fees for the area defined as BROOKFIELD, and that those fees will exist as a credit towards the Reimbursement Agreement. The Reimbursement Agreement also defines an additional Reimbursement Area that benefits from the construction of these trunk facilities.The Reimbursement Agreement states that the City would collect $1,925 per Water Trunk connection. The Reimbursement Agreement further states that in the event the trunk fee is increased, the reimbursement will increase as well, until the termination date or the entire reimbursement amount is achieved, whichever comes first.

On June 26, 2012, the City Council Approved the Comprehensive Sanitary Sewer and Comprehensive Water Studies by Bolton and Menk. These studies recommended adjustments to the City's Rates and Fees for trunk and user fees. The City's general Sanitary Sewer Trunk and Water Trunk Fees were reduced while user fees were adjusted as offset. One of the major adjustments was proposed financing structures for the future water treatment plant. As all users on the water systems would benefit from this facility, the City balanced the cost between trunk fees (new development) and user fees (current users). Some cost reductions were also recommended in the studies. The studies did acknowledge the Reimbursement Agreement. Both the Reimbursement Agreement and the Comprehensive Utility Studies acknowledged that the entire reimbursement amount would not be realized. Through the sources and uses table, the study acknowledges that the Reimbursement Amount would not be fully realized and acknowledges that a lower rate would be collected. Again, in further review of the Reimbursement Agreement, it is recommended that the tiered Water Trunk Fee be established over the remaining life of the Reimbursement Agreement (through 2026).

On November 27, 2012, the City Council approved the 2013 Schedule of Rates, Fees, and Charges, including the recommended adjustment to sanitary sewer and water trunk fees. In reviewing further with the City Attorney and discussions with legal counsel for 21st Century Bank, the tiered rate is recommended in order to honor the existing Reimbursement Agreement with 21st Century Bank. This applies only to the water trunk fee. The water trunk fee within the reimbursement area is proposed to be $1,925, consistent with the Reimbursement Agreement. The water trunk fee outside the reimbursement area is proposed to remain at $1,550, consistent with current rates and fees as well as the 2012 Comprehensive Water Study.

The City has received applications for two (2) plats within the Reimbursement Area. The City has been reviewing OAKWOOD ACRES, a three (3) lot subdivision along the re-aligned 167th Avenue, west of Nowthen Boulevard. This plat would be subject to the Water Trunk Reimbursement. The City has also received an application for BROOKFIELD 4TH ADDITION. This is a proposed 77 lot Major Subdivision. This plat is subject to a simple Water Trunk and Sanitary Sewer Trunk credit, meaning there is no money collected by the City to reimburse to 21st Century Bank (21st Century Bank is owner of this site). The City has also been working with a potential developer of the remainder of SWEETBAY RIDGE. The potential developer is under current agreement with the Property Owner. This 85 lot major subdivision is subject to the Water Trunk Reimbursement. The total financial liability or gap if the underlying Water Trunk Fee is collected is approximately $33,000 for SWEETBAY RIDGE.

If introduced, a Public Hearing Notification will be posted in the Anoka County Union prior to adopting the ordinance.

Alternatives

Alternative #1. Adopt the Ordinance as drafted. This would appear to be the preferred option to honor the existing contractual arrangement and plain language of the agreement with 21st Century Bank. This alternative distributes the true costs to those parcels that would benefit from this original capital investment by the original developer.

Alternative #2. Adjust all Water Trunk Fees to account for the deficiency in trunk fee rates. This alternative would distribute costs to users not directly benefiting from this trunk line construction and may be more difficult to establishing the essential nexus between the fee collected and the service provided. There is less certainty in this scenario as well, as the City would need to average the gap over an estimated number of connections.

Alternative #3. Do not adjust the Water Trunk Fee. Staff, in working with the City Attorney, believes this alternative opens the City up to legal challenges regarding the interpretation of the plain language in the Reimbursement Agreement. The Agreement does not state that the City can collect less in Trunk Fees, and thereby reduce the reimbursement to 21st Century Bank. This alternative seems to expose the City to the highest financial liability if a challenge is submitted and the City is not successful in defending said challenge.

Staff recommends that the City Council introduce Ordinance #13-17 and call for a Public Hearing at the September 24, 2013 City Council Meeting.

Preparation of the Ordinance is being handled as part of normal Staff duties.

Motion to introduce Ordinance #13-17 amending the 2013 Water Trunk Fee.