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HomeMy WebLinkAbout13.B.2. Discussion of Sewer Availability Charge (SAC) Credit PolicyTO: Mayor & City Council Mark McNeill, City Administrator FROM: Bruce Loney, Public Works Director SUBJECT: Discussion of Sewer Availability Charges (SAC) Credit Policy DATE: December 20, 2011 INTRODUCTION: BACKGROUND: CITY OF SHAKOPEE Memorandum I3.L3.-L This agenda item is to discuss the development of a SAC Credit Policy and what criteria to include in that policy. Attached for Council direction and discussion is a SAC Credit Policy from the City of Anoka. On September 30, 2008, the City of Shakopee received 1,494 SAC credit units from the Metropolitan Council Environmental Services (MCES) due to Rahr Malting coming off the regional sewer system. Currently a SAC is set at $2,230 per unit for 2011. Since September 30, 2008, the City has been collecting the MCES SAC on building permits and depositing the money in the sewer fund instead of sending it to the MCES. A SAC credit has been reduced from the total of accumulated credits, whenever a SAC was collected. The City of Shakopee also received from MCES in 2008 a major lift station (L -16), major force main and gravity sewer to the Blue Lake Treatment Plant. These facilities will require on -going maintenance and repair, and funding for these annual costs will need to be planned for through use of fund cash position or allocation of existing rate collections. In development of a SAC Credit Policy, staff believes a determination of how many SAC credits should be used in repair /replacement costs to the facilities given to the City. Remaining SAC credits could be available for use in economic or financial reserves, as determined in a SAC Credit Policy. Attached to this memo is a memo to Julie Linnihan, Finance Director, in regards to SAC Credit Policy information and analysis on how many SAC units should be reserved for L -16 forcemain and gravity sewer transferred by MCES to the City. A minimum of 894 units is recommended, valued at approximately $2,000,000 which should be reserved for future sewer needs. An estimated current amount of total SAC Credits applicable to the City of Shakopee is approximately $3.3 M. As of December 15, 2011, the City of Shakopee has a remaining balance of 599 SAC credits that will be applied against the payments that are typically paid to the MCES, as permits are issued. This level of credits will continue to be reduced, as permits are issued, and at some future point, the City will again be sending payments to MCES, rather than reducing the credit balance. The remaining SAC credits could be used as an economic development tool, as per the 2008 email from City Attorney Jim Thomson, which is attached. The fee waiver would need to meet the criteria of the City's business subsidy policy. The use of these credits as an economic development tool could involve the coordination of a cost sharing through use of credits for a specific sanitary sewer project, specific to a business incentive plan or other requests. Another use of SAC credits would be in a sewer project in which the City wants to provide incentives to bring sanitary sewer to an area and/or avoid assessment appeals. Staff has also attached a policy from the City of Anoka, to use as a point of reference on the use of SAC credits. In review of this policy, there are criteria on the use of SAC credits; however, the implementation is still done on a case by case basis. There are few cities in Minnesota that have a SAC credit policy, as few cities receive these credits. For the CR 69 sewer extension project, the use of SAC credits to the three parcels previously discussed, could be done if Council decides this situation meets the criteria. Staff has suggested that the use of SAC credits should be for a specific sewer purpose. The City may also find it useful to request a waiver of assessment appeal upon granting use of SAC credits. Ironically, on this project, SAC credits could be issued to Rahr Malting where the credits were originally generated. ALTERNATIVES: 1. Discuss the draft SAC Credit Policy and provide staff direction. 2. Table for additional information. RECOMMENDATION: Staff recommends Council to review the issues and provide direction in formulating a policy on the use of SAC credits. Staff would also recommend taking a draft policy to the Economic Development Advisory Committee (EDAC) for their input and comments. Upon development of a policy and review by the EDAC, this City policy on SAC credits will be brought back at a future Council meeting, along with a resolution for Council review and approval. ACTION REQUESTED: Discuss the draft SAC Credit Policy and provide staff direction. Bruce Lone i' .E. Public Works Director ENGR/ 2011PROJECTS /S011- COUNCIL/DISUCSSION- SAC - CREDIT- POLICY SEWER & WATER ACCESS CHARGE ASSISTANCE POLICY Policy Number 2011 -02 1 ADOPTED: May 2 , 2011 General Purpose and Objective for Creating this Policy. To help sustain the local economy and to maintain and strengthen the tax base, the City often considers ways to stimulate economic development. The City is committed to promoting quality development, redevelopment and reuse of properties. In some situations, up front utility costs may prevent business start-ups, renovations or expansions. In any of these situations, the City may consider assessing, granting or borrowing the funds necessary for sewer and water access charges. This will be determined on a case by case basis for each fee and/or a combination of all of these fees. At any time, the City may discontinue the option to provide any assistance for these fees. II. Background. A. Metropolitan Council Sewer Access Charge When there is new construction or a change in use of a property that requires additional sanitary sewer capacity, a fee is charged by the Metropolitan Council — Environmental Services. The fee is , based on a determination of the number of sewer access charge (SAC) units. One SAC unit equals 274 gallons of daily wastewater flow (based on the Metropolitan Council's calculation of what a single family dwelling produces in one day). The fee for each Metropolitan Council SAC unit is as charged by the Metropolitan Council. If the property has a change in use, the SAC fee is reduced by any previous SAC payments. Based on changes over time, there has been a reduction in the demand for wastewater services in the City. However, the unused `credits' for a property are not refunded. Up to the end of 2009, the City was able to accept the unused credits for city -wide use. As a result, the City has a limited `bank' of Metropolitan Council SAC credits that can be applied city -wide. A credit is equivalent to the fee for one SAC unit. The total number of City credits is automatically reduced when new SAC units are required for new construction or additional SAC units are required for a change in use of a property. B. City Sewer and Water Access Charges In 1996, the City adopted access fees for the City water system (WAC) and in 2001 the City adopted access fees for the sanitary sewer system (SAC). These fees are used for long -term maintenance of the City sanitary sewer and water system. For any construction project or change in use, the City SAC and WAC units are the same as the number of units determined by the Metropolitan Council. However, city fees will be imposed only Policy 2011 -02 Policy; Sewer & WiaterAccess ChaigeArsistance Po1ZCy Page 2 of 4 for the units resulting from an expansion or a change of use that requires additional charges. The total number of units for a project may, be reduced in instances where, the use was established prior to adoption of the City fees. III. Potential Situations for City Assistance. The following list provides examples of potential projects, that may benefit from City assistance: The Streetlighting District Anoka Enterprise Park East River Road West Main Street Ferry Street Corridor Historic Rum River District Reuse of existing spaces; second -story use /renovation; conversion or re- occupancy of vacant spaces; targeted businesses such as sit -down destination restaurants or grocery store. Reuse or expansion of existing spaces that result in increased jobs (assuming industry needs are consistent with city's water management plans). Redevelopment of underutilized commercial properties. Redevelopment of underutilized commercial properties. Redevelopment of underutilized properties. Targeted development (grocery store, restaurant on the river). Commuter Rail Transit Area Development of targeted commercial facilities (research and development facilities that are job - intensive); mixed -use projects. Re- location of existing TH 10 Due to highway construction. Businesses In making a decision on a request under this assistance policy, the Council will consider the number of available City -owned Metropolitan Council SAC credits, the City's need for credits, and the benefit to the community. Requests related to construction of a single family home are not eligible under this program.. IV. Basic Requirements. In addition to the requirements of the application/approval process described below, the following basic tenets shall apply: Assessments or loan agreements: • All assessment or loan agreements made through this policy must be interest bearing. • The period of the agreement shall not exceed five (5) years. Policy 2011 -02 Po/scy; Sewer & Water Access ChaegeAsastance Policy Page 3 of4 • The owner of record must execute an agreement and waiver wherein the amount of the assessment or loan shall be recorded and assessable to the property in the event of default according to the terms of the agreement. Generally speaking, an applicant who has not been in good standing with the City, for instance as a utility customer or a licensee, will not be considered for this program. V. Financing. Upon application, the City may consider an interest bearing loan or assessment that allows financing of sewer and/or water access charge fees. The loan or assessment must be approved by City Council. In general, payments shall be placed in the City's dedicated Urban Development Fund. Uses of the balances of this fund shall be subject to City Council approval. Nothing herein shall imply or suggest that the City is under any obligation to provide incentives to any applicant. VI. Criteria for Evaluating Requests The following are considerations the City may use in evaluating requests: • Is this a redevelopment project? • Will this project increase permanent employment or retain existing jobs? • Will this project have a high potential for generating additional spin -off development? • Is this project supported by substantially more private dollars than public dollars? • Will tax values increase? • Does the project meet provisions of the comprehensive plan, zoning ordinances, city building code, and/or other city codes? • Are there other types of public assistance used/requested for this project? VII. Application /Approval Process The City may adopt a processing fee (sliding scale based on value of project and amount of incentive) for requests under this policy. The following information must be submitted to apply for financing: 1. Business name 2. Address 3. Legal Description 4. Name of Authorized Representative. 5. Name of Property Owner (if different from Business Owner) 6. Description of Business 7. Description of Improvements /Change of Use for the project. (Include plans and drawings, if appropriate.) 8. Narrative explaining the request that also addresses the evaluation criteria Policy 2011 -02 Policy; Sewer & Water Access Charge Assistance Policy Page 4 of 4 When complete information is received, staff will review the application, request any additional information needed to process the application, prepare the appropriate documents and place the request on the City Council agenda for their consideration. Bruce Loney From: Thomson, James J. Sent: Tuesday, October 28, 2008 1:58 PM To: Mark McNeill Cc: Gregg Voxland; Bruce Loney Subject: RE: Rahr Malting Credits Mark, I talked to Gregg about this earlier today. I think that I understand the issue. As I see it, there are two separate questions. The first one is: "Do future payments by builders to the City for metropolitan SAC charges need to be used solely for sanitary sewer purposes ?" The second question is: "Regardless of the answer to the first question, can the City waive payment of those fees as an economic development tool? The answer to your first question is not crystal clear. Metropolitan SAC fees are not regulated by Minn. Stat. Sec. 444.075. That section only regulates sanitary sewer fees established by cities and counties. The statute requires those fees to be "just and equitable." The question is this case is whether future metropolitan SAC fees are actually "city fees" because the city does not need to transmit them to MCES as a result of the SAC credits now available to the city. Regardless, though, of how those fees are characterized, I think that a court would say that the SAC fees should be used only for sanitary sewer purposes. The reason behind my thinking is that the purpose of those fees is to offset sanitary sewer costs, albeit metropolitan sewer costs. I don't think that the legislature intended to allow cities do use the money collected from those fees for non - sanitary sewer purposes The answer to the second question is that the City can legally waive payment of future SAC fees as an economic development tool. That answer does not depend on the purpose for which those fees could be used if they were paid. Example -- park dedication fees must be deposited into the park dedication fund and that money can only be used for park purposes. The city could, however, waive the payment of park dedication fees as an economic development tool. The waiver would constitute a "business subsidy" and therefore the statutory process for providing a business subsidy would need to be followed. The fee waiver would also need to meet the criteria of the city's business subsidy policy. The fact that the funds, if paid, would have been deposited into the park dedication account is not a relevant legal factor in determining whether to waive the fees. (That's not to say, however, that it wouldn't be a relevant policy factor.) So, in summary, I think that the SAC fees, if paid, should only be used for sanitary sewer purposes. The city council may, however, waive payment of those fees as an economic development tool if the rules and procedures for business subsidies are met. Let me know if you need anything else on this. Jim Original Message From: Mark McNeill [mailto:MMcneill @ci.shakopee.mn.us] Sent: Monday, October 27, 2008 4:22 PM To: Thomson, James J. Cc: Gregg Voxland; Bruce Loney Subject: FW: Rahr Malting Credits This relates to the SAC credits that will be available to the City now that Rahr Malting has gone off the metro sewer system. In effect, it givers the City the ability to receive back the proceeds from 1500 SAC credits as they are paid, valued next year at $2000 each. The City has an unlimited amount of time in which to use the credits. Two schools of thoughts: 1 CITY OF SHAKOPEE Memorandum TO: Julie Linnihan, Finance Director FROM: Bruce Loney, Public Works Director SUBJECT: SAC Credit Policy Information DATE: October 25, 2011 As a follow - to Council direction I am providing data on the SAC credits given to the City and replacement costs for the L -16, forcemain and gravity sewers given to the City by the Metropolitan Council Environmental Services (MCES). The sewer rates have not reflected the cost of replacement of these items. First of all, an analysis of reasonable replacement cost for facilities given to the City by MCES: 1) L -16 A. Replacement Cost = $1,000,000.00 (major components excluding building and wet well) B. Useful Life Left = 27 Years C. Annual Cost = $37,037.00 /Year 2) Forcemain A. Replacement Cost = $1,100,000.00 B. Useful Life Left = 40 Years C. Annual Cost = $27,500.00/Year 3) Gravity Sewer A. Replacement Cost = $1,100,000.00 (line has been relined) B. Useful Life Left = 40 Years C. Annual Cost = $27,500.00 /Year An annual cost of $92,037.00 for (20) years would be sufficient funds ($1,840,740.00) to make necessary repairs and replacements of these facilities with existing sewer funds. These funds would equate to around 875 SAC credits at $2,230.00 /unit (2011 rate) and this rate is increased annually by Met Council. Staff would suggest that $2,000,000.00 be set aside for replacement of L -16, forcemain and gravity sewer replacement costs or 894 SAC units. The remaining SAC units, approximately 600 SAC units or $1,338,000.00, could be available for economic or financial reasons as determined by the City Council and the City Attorney. The City did receive a total of 1,494 SAC credits on September 30, 2008. Currently, there are 635 SAC units yet to be collected in the SAC credit account as of September, 2011. Currently, there are approximately 750 parcels with individual sewage treatment systems (ISTS). Most of these sites are residential with industrial areas in east Shakopee along C.R. 101 and Maras Street on ISTS. Based on my analysis, a SAC credit for every ISTS parcel is not possible. Criteria on when to use SAC credits would be an economic factor (promoting development/tax base) and financial factors (to serve an area to avoid assessment appeals and to support economic factors /jobs). I believe this information will help in the formation of a SAC Credit Policy and also provide guidance on how much of the SAC credits should be preserved for facilities that have been given to the City by MCES. ENGR/2011- PROJECTS /2011 - COUNCIL/SAC- CREDIT- POLICY Bruce Loney, P. Public Works Director