HomeMy WebLinkAbout05-1987
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City of Denton
Department of Utilities
Report on Capital Recovery
Fee Feasibility
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t May 1987
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j Prepared Under the Direction of the Capital Recovery Yee
Citixew Committee
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f Camp Dresser b McKee Inc,
Fort Worth, TX
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Capital Recovery Pee Citizens Committee
Tom Harpool, Jr. (Chairman)
Bennie Snider
Bob Bland
Jane Hopkins (City Council Member)
c ties , Chair
Roland lAn*9
Rdward Coomes((PUb11oUUtilitSeaBBoard Me~eber)n)
Ann Houston
Jack Davis
Robert Collier
Marilyn Smith
Richard Got*
Ralpph'Plesher
Evelyn Black
Juanita Milam
Brian Burke
Doyle Chrisman
Jack Delaporte
Charles Mulkey
Richard Salazar
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TADLL OF CONTENTS
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Section Title - - Page
t summary
2 Purpose of the study 2-1
3 Capital Programs .......,r~ 3-1
4 Impact of Capital Programs on Rates 4-1
5 Options and Dollar Impacts 5»1
6 Other Considerations „ jo,, too 6-1
7 Findings and Recommendations 7-1
APPENDIX
A Methods of Establishing Capital Recovery Fees A-1
9 Legal Considerations .......................,.,.I..,. B-1
i C Pending Legislation ..,;i,..,....1 .1.. It-1 I
D Citizens' Committee Meetings C-l {
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• LIST OF TABLES
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Following
1 Population & Service Connections
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2 Water System CIP 3.2
( 3 Wastewater System CIP .
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k Water System Proforma
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5 Wastewater System Proforma
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G Water System - Cost of Service Factors 5-2
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7 Wastewater System - Cost of Service Factors 5„3
1 9 Future Year Costs by Category 5-6
GIST OF FIGURES !
Appl'oximate Service
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2 Water System Cost Components {
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` 3 Wastewater System
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SgCT10N 1 - SUMMARY
CENgRAL
This report presents the results of Phase One of a two-part study of the
feasibility and applicability of capital recovery fees to the rate
structure of the City of Denton's water and wastewater utilities. Phase I
included
o preliminary assessment of £inencial, budget, planning and legal
issued
o projection of capital improvements program, operating and
maintenance costs, debt service costs, and system uaage datai
o a series of workshops with the CApital Recovery Pee Citizens'
Committoe1 and
o submittal of a report covering findings and recommendations
relatlug to the feasibility of a capital recovery fee.
,l METHODS OF ANALYSIS
I Seven primacy methods were used to review the issues rolating to a capital
recovery fee program for the City of Denton. These inrludedr
o Committee workshops
o Utilities Uepartment studies
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o Legal review through CDM subcontract
o Data review
o Pinancial review and computer projections
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o Engineering and institutional review
o Telephone survey of other Texas cities
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INDIl1C3 ' ~
i) The City of Denton's Vater and Wastovater utilities now are
finenciallyybb sound. This In some part is due to the strenxth electri theiWater andtWastewaterdUtilitiessbenefitdfrom thisccombinedly~
approach.
2) In the Water Utilityt payments for the City's participation in the
Ray Roberts Project are scheduled to begin in 1988 and are a
primary cause of a projected 25 percent revenue shortfall in 1988.
This problem, however, was anticipated' and the City is working with
the city of Dallas and the Corps of Engineers to defer payments
until 1989, This effort, combined with other adjustments in
capital' programming, could limit necessary rate increases to
approximately 9 percent in both 1987 and 1988.
3) In the Yater Utilityi capital expense relating1to future growth is
expected to rise from approximately
$0.56 between 1987 and 1988, This expense isepr jectealto rise to
50,63 per 1000 gallons by 1991. Total expen (capit plus
operating) for these years are $2.01, 2.76 and 2,73 per 1W
gallons, respectively.
4) In tba Wastewater Utility, capital exipeserelating,to future
growth is expected to rise front approximately $07 per monhly
residential bill to $0.87 between 1987 and 1988, This expense is
projected to rise to $1,64 per month by 1993, Total expenses
(capital }plus o~'orating) for these years are $9,89> $11.26 and
$11,96 peF;,ont ly residential bill, respectively,
5) Prom an equity standpoint, the Committee generally favored
recovery of growth-related capital expense using a fee 'or some
mechanism other than monthly service charges to all utility
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customers,
6) A improvements from recovery alfee can l system shusift
growth m
growth related and is an acceptable and equitable method of
restructuring the City's schedules of rates and charges for water
and Wastewater Utility services
7) There appears to be ample legal precedent in Texas and in other
states to support a capital recovery fee ordinance by the City of
Denton.
8) A bill pending before the Texas Legislature may pre-empt the
ability of Cities to enact capital recovery fee programs
specifically designed to meat specialized needsl the bill sets
methodology and outlines extensive administrative procedures.
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RECOMMENDATIONS
Based on previous work by the Utilities Department, deliberations by the
Committee and the findings as cited herein, the following recommendations
are made
1) The Department should broaden use of pro-rate agreements to include
reimbursements for oversize construction, This should encourage
in-filling and development adjacent to existing service areas,
improve cash flow, and defer rdimbursemont to a time when more
customers are likely to be connected to the system,
2) The Department should investigate poosihle use of assessments or
the expanded use of pro-rata agreements for certain area specific
growth-related capital improvements, Current Subdivision and Land
Development Regulations allow pro-rat(i methods for sewage lift
stations, Extension of this method to other facilities should be
considered.
3) A capital recovery fee appears feasible for the City of Dentont
however, the City should postpone proceeding to ?base 11 of this
study pending resolution of the bill pertaining to capital recovery
foes currently before the Texas Legislature
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The Capital Recovery pee Citizena' Committee proved to be invaluable in
terms of input and discussion, Further, the workshop process provided the j
opportUpity for both education and the exchange of ideas, eon-:erns and
perceptions about capital recovery fees. While this report represents e j
product of the study, there is equal value in the process used to develop
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l SECTION 2 - PURPOSE
r i 6ACKdROUND
Historically, most utilities got schedules of rates and charges by
estimating,operating and capital costa, and dividing that total by the
anticipated commodity totals (water, Waaieweter, electrical units) to
obtain unit rates. These rates are then applied to each customer on the
basis of,quentities used.
Under this method, each customer theoretically pays a proportionate share
of all costs associated with building, operating, maintaining, and
expanding each utility. During periods of moderate growth, low inflation,
and modest interest rates, this method is generally effective and
equitable.
During recent years, howtiver, many cities have found that rapid or erratic
growth characteristics,cotiplod with increasing construction costs, higher
interest rates on borrowed capital, clearer definition of limited and fixed
income households, and limitations on the use of the ad valorem tax
process, hava required a roview of utility f.innneing methods, These
reviews often have focused on the concept that those who are responsible
for the need to expand capital facilities should also be responsible for
the associated costs - i,e„ growth pays for growthr From this process tho
Capital Recovery Pee method has emerged,
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THE CITY OP DEtj0N
During 1984, the Utilities Department of the City of Denton investigated
the applicability of capital recovery fees to its own operations, These
studies, however, did not result in change to the City's basic rate
structure,
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During 1986" the City again decided to Investigate capital recovery fee '
methods and retained Camp Dresser & McKee for that purpose, The City of
Denton and Camp Dresser & McKee (CDK) entered into an agreement under which
CDM, in oonjunotion with the Capital Recovery Pee Citizens, Committeet was
to evaluate and make recommendations regarding capital recovery fees,
This study was separated'into two parts, Phase I includedi (1) a
preliminary assessment of financial, budget, planning, legal, and
institutional Issues; (2) projection through 1995 of the capital
improvements program, operating and maintenance costs, debt service costs,
and system usage datai (3) a series of workshops with the Citizen's Capital
Recovery Pee Citizens' Committee; and (4) submittal of a report covering
findings and recommendations relating to the feasibility of a capital
recovery fee. Phase II, if authorized by the Denton City Council, would
develop the details of a capital recovery fee system,
'this report on capital recovery fees pre>ents the results of four meetings
with the Committee conducted by CDM, numerous eon.colltations with the
Utilities Department staff, and detailed analyses and invertigatlons
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performed by CDM.
j The study area is shown in Figure 1, Population and service connection
data for that same are;, are shown in Table 1,
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FINANCIAL REVIEWCOMPUTER PROJECTIONS
Utilities Department data relevant to Oft feasibility of a capital recovery
fee srogram generally cover the five-year period 1987 through 1991. This
information consists of the Capital Improvement Budget, the operating
Budget, and the Pvoforma Statement for nach of the two utilities, These
source documents were used to develop financial projections through 1995
L and to allocate each capital lmproaemonl between existing and future
I customers,
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I SE94lfE CCNnftIIONS
PMOM PER
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POPUEAIION CM0111E IOIAU ANNUAL A061110NS SERVICE OOMNECI1011 41
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` POPUW:2 M MIER WIfEVAIER YAIER NASIENA1fR 111144 11431E'4AIEB "M MASIEWIFA
I 011Y OR SERVICE SERVICE SERVICE SERVILE SERVICE SERVICE SERVICE SERVICE
YEAR H410 AREA AREA 0EA AREA AREA AREA AREA AREA
.1410 1.131
1910 1,311
1910 9..71
1943 11192
1950 21012 I
1931 21,919
1437 22,411
1931 23,011
1951 231561
1955 11,101
1956 211635
1951 251:02
1910 1S 1.0 .
1934 261191
1980 2041 21,004 18,004 013 - 3.90
1981 28,111 28,61! 21,015 1,141 1f6 11,46
3.90
1981 29,9!4 21,038 11,031 Yom 116 ..3 3.10
1913 301153 k,iil 54,331 11130 36`
1914 321031 33,104 31,104 11144 " 1,1161 316 3.40 3At 1
1415 35,331 $3,044 $3,044 1,462 1,4621 118 318 3.10 3,10
1481 34,441 3413M 14,3M 1,104 B,BU 4 333 133 3~l0 s,f0
1 1481 311m 311134 33,150 9,181 9,1611 333 333 3.40 3.f0
1911 1?,761 31,121 311124 11119 91314 4 357 352 3190 slit f
1981 31,511 311441 311144 t,111 9,0121 333 333 3140 3.10
111d 311114 6 $9,114 N,111 101224 10,224 1 353 333 3110 310
191E - 10,03 41,181 41,111 12f 10,133 10,155 I 311 !II 3,46 34ft l
5911 ~I4SI2 43,314 43,Jf4 121 _ 11~01J li,t21 E 240 342 3113 3,f1 ,
3913 42,311 44,921 04,123111 11,251 11,5191 210 391 3.41 3.40
1914 4311$4 41,452 48,452121 11,311 11,1111 341 347 4101 3.f0
(113 43,111 41,440 41,450121 11,133 12,1611 141 138 4.01 3,1t
1416 41,102 41,117 41,113121 12,011 11,2511 322 03 1.f1 3,16 1
If11 IS,3P8 49,140 43140012) 12,490 11,4101 413 151 3.11 3.10 1.
1911 11,115 40,900 41,104121 12,101 12,5391 311 320 3402 3.90
"11 11,241 49,200 4!,240 121 11,441 kt,SIS t 1J 31111 3118
19
I1,013~ $0,441 19,341 !11 11.14? k2,N0 4 33 1. 3.10
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` .....SERVICE .
r PERSOAS PE.t
SfaVFCE CBNNECIION
POfOtAfICN 41'11ANVE 101`.13 ANNUAL A01)[111113
! POPUlA11JN MAIN NASSENAIER VAIER NASIEJAIER 11AICA NASIEIAICA "IS US1E4AIIR
CI1Y OP SERVICE SERVICE SERVICE SERVICE SERVICE SOME SERVICE SERVICE
i, YEAR 6ENiGN AFEA AREA AREA AREA AREA AREA AREA MEA
1481 SO,~N4 31.610 49,400 121 17,!06 42,661 1 2U i4 .3,41 3,90. ' '
1462 52,058 sit ON $1,110121 131169 13,3001 383 833 4109 ],90
1413 54,035 60,013 54,444121 111196 13,9851 309 681 1043 1.90
1,114 Sd,0s$ 83}209 38,030141 13,435 1111831 1,231 419 4110 3.90
1985 $1,014 01 68,400 11,190 411 16,813 14,100 11233 13 3146 4.11
1966 11,020 69,160 12{834 11,611131 15,615151 431 NS 3.95 4100
1903 83,940 1?,120 681343 18,500 131 161428 111 864 163 3193 1104
1492 68,440 141886 101062 19,100131 11,24? 151 900 831 1.91 1100
1989, 69,930 191040 131181 201100 131 11,931 (5) 800 690 3191 4.11
1990 22,400111 82,.00 11,30011) 21,000131 19,658(5) 800 111 3.41 4113
4,34
1991 15,410 861220 601210 21,000 131 19,403 (5) 800 144 1116
1992 21,910 90,240 831010 23,1)8111 201010 1,33a 601 4100 1,15
? 1941 80,130 940240 6!!810 24!110111 200611 10032 661 4100 4,13
1994 821440 411280 88,180 23,200 HI 21,315 I,O30 d61 1.00 4.15
1993 83,430 611 102,300 91,310 111 261230 141 22,012 11030 661 4.00 4.13
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I Census Oelo
1 Aelulres Vrri4latlaA !
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III Profit IN Nllholl, 'NA1Gw4tfy Coliftllod Systtf .1ASlet P140,
July 1913, loot 211
121 noose ted Nlchpls, 'M4sttyiten Collodion Synloo Nssltr PI4n',
!
;!s July 110 0 1462t 3.1
t Ill City"ot WWI Pym CIP 11.91, tilt 10
14) W esliuto based oe 3.9 peysoss pit connections
15) City of 016406, Meer CIP 01.9t, Pip l6
I } 91 City o4 Onion IUn4 list Amlysls 20101, Minh 1416, 3A41e VIII
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III Clly 01 Donlon 'Lind Use Wylie ?010', torch 1984, Wit VII 1
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The Department's standard proforma presentation of financial information -
was modified so that th,* impact of potential capital recovery fee revenues
could be measured.
Separate analyses were prepared for the water and wastewater systems,
These analyses were used ci,s
o tlonerate financial model data that considered annual population
growth rates of two, three, and five percent
o Set revenues other than capital recovery fees so that debt service
coverage was maintained at exactly 1.251
o Set revenues at a level that produced zero gain or loss in terms of
cash flow while allowing the debt service coverage to fluctuate,
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i These methods provided the ability to examine the theoretical financial
impact of capital recovery fees set at various levels. Each of the
relevant tables is included in various sections of this report,
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SECTION 3 - CAPITAL PROGRAMS
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GENERAL
Operation of utility systems require periodic capital investment in fixed
assets such as storage capacity, pump stations, collection system,
treatment capacity, etc, The need for investment is driven by three
considers;tionsi
o Periodic replacement and renewal of existing facilities;
o Betterment of existing service levels; and
o Expansion of facilities to accommodate increasing demand. '
Construction-related economies of scale generally dictate that expansion be
provided in large, occasionnl expenditures rather than smaller, incremental
purchases. Further, as prudent investors, municipalities will typically
oversize new facilities, such that capacity, and thus services, are
available in a timely manner ns the coiimuni y expands, As a result, f
communities may find capital service levels above (excess capacity) or
S, below (inadequate capacity) desired standards. There is a dynamic i
relationship between growth, service level and capital investment,
Urban expansion, whether population growth, business development or the
geographic spread of urbanization, is a major influence on the demand for j
system expansion. In most part, growth is associated with a general
increase in demand and thus requirements for a proportional expansion of
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capital facilities, To a lesser degree, growth can also contribute to the
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j need for a betterment in services and possibly accelerate the need to
i1 repair or replace facilities
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oyements planning is accomplished by the City of Denton+s -
Capltal imp
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Utilities Department through an snnual process that' continually looks
forward to the next five-year period. Results of this work are contained
in a "Capital Improvements Plan" document, the most current of which was
prepared in June 1966 covering the period 1967 through 1991. This plan
lists each proposed capital improvement project, its estimated cost, the _
year (or years) in which the capital expenditure will occur, and whether
the project will be funded from current revenues, bond funds,
aid-in-construction, or some other source. In addition, each project is
supported by a location map, a project narrative, and an identifying
number.
Data are presented for each utility (water, wastewater, and electric) and
analyzed in terms of effects on future usc- harges, debt Mervice costs,
debt -to equity ratios, and cash flow impacts. In addition, this typo of
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Information Is presented in composite form to illustrato the needs and
impact of the Utilities Department as a whole, Review and approval of each
Capital Improvement Plan takes place at the Public Utilities board, the
planning and Zoning Commission, the office of the Hayor,and the City
Council,
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water system capital improvements are projected to total nearly $29 4
million over the five-year period, A $4,0 million upgrade of t'ne existing EE
water treatment plant plus a $9.3 million expansion of water teeatmant E
plant ere the major cost components
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Thes6 data are included herein as Table 2. This table has been expanded to
indicate the preliminary allocation of cost for each capital. improvement
between existing and future users
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(>•W1 Mice 4womt 1 7011 5011 23 5 1S 17 y 30 1
12.41.1 f(4ot lkw1tM foci 1 2111 ¢0X1 IS 14
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114002 NW water plaOE Senilmllia 1 0011 IOU 950 41410 2,930 1150 0,31
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8r•Y•2 M1iO11UAlt~s4al1r11rt1 I 5011 501f 110 120 110 200 200 boil 40y1 100
IJrY•j ville riot, lo601, souls I IDo%: 01; 100 100 100 500 $00 410 1 -410
b•Y•4 hill# i moltsl I 5uli 5011 69 41 193 100 2 tISOY I 6
1 ON-5 MYY 372 4otulm 0 1140 to Robum I 1011 soil 100 UI 309 I
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9lrM•f Aoplil/ Flit M104Al i V41vt 1 011 10011 10 10 5p col I SI
0p 11-! 1tp110t YllortlAttlWoot prolru I toll loll 200 200 200 200 200 / I 211
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09.11.2' 1phn1o061q, st, Yt I, 0itirllnl I 9031 loll 16 t t
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M II•Ii . 1M1W10/6`A441 MlfnI1A1 1 toll 9011
` „'k'i Agls16 jtV1AS Ml t4' v!1'I I tall 4D1! 150 IN IS t 13i5 i
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1 SOII PA3t 400
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F9 9S f4 91 FY ♦S L011 0L1d140 IFUNVIlisf
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1,161 3,160 5,911 5,911 5,114 5,304 l,SO4 Stt00 3,300 1v 51,711 1
50161. N61E4 LIF • 1407x1993
~ N,S31
I 6,016 2,170 1,916 1,JS0 2,550 $,A4 3,300 S,Sk 313 A ttl41
j FUMOINO i0U C(SI 1 IaM Fwd 8116 b12 360 S64 331 0 ` 4 1 2,3N
i 2 Eurhal #wMUb 860 100 100 SOa $00 0 4 0 ill
} S Aid JA LOASImUm b9 40 197 300 . 4 4
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Wastewater system capital improvements reflect a five-year total of about
$10.9 million with renovation and expansion of the wastewater treatment
plant the major item. These data are included herein as Table a.
From an equity viewpoint, capital expansion coats could be recovered from
nev development while ongoing fees and charges support systom repair,
operations, replacement and maintenance expenses, as well as capitol
betterment costs resulting from improvements in existing service levels
' This concept ensures that only growth related expenses are included in a
cost recovery system fees and that new growth is not held to a higher
standard or higher level of service than are existing residents.
Tables 2 and 3 have been expanded by CDH to indicate allocation for each
capital improvement between ixisting and future users. This allocation is
based on independent analyses performed by CDH and Department staff using
€ information contained in the Capital Improvements Budget document and
III various engineering reports prepared for the Department, For the Water
Utility, nearly 63 percent, or $17,5 million are projected as
growth-related projects over the period 1987 through 1491. For the
Wastewater Utility, approximately 45 percent or $4,8 million tan be
allocated to future growth,
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17.9.1 omwo llflrillel 1 70V !0:! 200 290 200 200 200 IfON w I Ib0
12.9.2 11uelllmu1 lea rlms I Sol; 507.1 170 170 1;0 120 120 621 339 1 311
I 17•1.2 low tali 1 9011 lox! 010 ;9 10 SO SO 241 224 I a1 1
01+11 )0110loulolo/t I loll loll ;I 11 63 100 2N 1441 110
I 17.9.1 AIO1440 101If 110011111oot ►roltlo I 19x1 lot: 700 206 200 200 #11 N I M
3 01•121 ROJI, N11411 SI/ Slwe IIAO !21 St, to uliv ON lot! 991) S0 to f 1 0
1111 17,04 11/01. Ao411Aood $1, INN Ll"llrowwd to MAW 1021 PC ?1 21 ! I 11
17.14 111C $Irold SooOf 4Joljcsff01 IO to. FU 1 1011 9911 40 M 4 I 11
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I1114.6 044141;Nlthofy Gook floor 1111 I 1911 1411 I0S in 2u 3 tl
N•1.1 too, }!0, lltult $lot( LIAIlumty, DV, to S6A+1611 tot! 9011 22 21 ! I 3/ ( f
N•4.1 AIOL Life#)" Woe llmolky, le, to Whoodl 1011 9011 Sl 31 1 I 11 !
b•1.10 Whoat LIAO to RtfU I Olt !doll 600 NI { I ON
Y►•1•! ANluo?o1Af0A it, lover LIAO I loll 96x1
11.1.4 k*mw 90, We LAO 1 9011 1011 136
0 qN{ tl? t l ~
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' 10.94 0. N11YR61ly k, IIIIII SINN U0 I loll 1011 100 4011 241 I 40
1 I 1 I 1 ~ {
I total Sear COIIO(IIIIA I I ! 1,dOS 2,112 IS) ),124 110 0 0 0 1 +,121 2,115 1 1f111 I 1
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11-W11-2 tau+llijklm I61161d111Q1 1 3311 61:1 :0 1r1tr 17 I 31
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?9•MM•S 1661 Plot W A10 HIIA OfAevllim I 1111 01: 100 1111111 13 1 41
i 17+lM•1 9ollofhr wit StltIM4 ISCb01J I 6011 5011 30 4 IS 1 l5
I~ I1•MN 1 tluilllr OMovltl6A I 3311 6111 100 to IN 9 I 111
VJ.W•!' 011(111461"1 tAA61t111A11 At SILIIInq MY}P 1 1311 VU 100 411
la uw•. 1AAer6ll+e t dlllr+Itlvrlttbn0lcgY S1ud1e 1311 bit: 2s 2S 25 25 IM 131 61
11.3N1!I leotuf +Ilvn Slull+ Pub' 33%1 6111 2S 25 f l 1I .
01•Ytr•3 lilt Strtim 1eAovlllm Sol' SOtt 100 I0 6/ I t1 !
l WWII, 011uOf 1100'Wer ! 1511 6W 60 N 13 1 21
l3 2! I 31
I l1.1lM•I moo All 216ke • $6. Pl/At 1 3311 6111 85
n.1W1 llomh1 011 Ulllltltlaa Slate I 33111 6M 104 f01 33 J 61 t
! Ot•NN 2 MMftI4WOVA104 I Mt 6111 200 200 40 1311 260
N W3 RMotiLtl bKUlOA lIIIN Monitors I 3lL1 8711 IV it 3 1 1
11
111.111 I t$toy 9yltf► • $404 flllfrl I Ul( 6ISI 100 104 33 it
!b•IW1 Wild U11 4t611on hittlv6llo6 1 3311 111M 200 201 11 1 111 i
90•MM•S 10 I OS114 Lilt MUM WIWI 1 3311 6111 61 1 31
91•YM•3 Plot 1014A1f01 • $90 1 1011 2011 11000 S,/M 00 1 21)
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11111 I f~
~ IN~ICIIeI Lblall0ry
N•I~•S 161 tt11041H 1 }011 toll 100 lit 51 1 yl 1
17-K-1 left t"IPnnl 1 6011 5011 16 9 19 22 34 Ilt '6l t }I I j
dllcella"Ns toNAceii 61 tt111{bq Not? 1 14011 }011 2 2 2 2 1 It 1 l 111
woonto 1 5611 5011 15 12 1 36 to 1 10 II
11111-K-1 l/l 14r/
laUf Malflobl U WAVY 110 24 33 33 39 0 ( 1 0 211 125 = I?!
MI91tNfs4 CIP • 1919.91 31120 1,121 11221 ItI41 11132 111 1 1 0 101962 111311 60110
SM2•!} 21000 2{040 2100 31100 11110
111111111 It 111 111111 111111 /qY1 Al»1 1NU {eel/ IIWI ippl
1014 WASISM IN tip 4 ltl14" l' no 2,911 11221 11111 llls2 21000 its" 21o1/ !toll 111112 1 {
Saru1 1Y 11.91 • CI Iv V NOW 3.111r CIA
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INIIOR Millet, PSIe1 Jdly I?o1
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S8C%ION 4 - IMPACT OF CAPITAL PROORAM ON UTILITY RATES
Water and wastewater service rates are set so as to recover the expen,:e of
operating, maintaining and expanding the utility systems. It is possible
to place these expenses into one of three categoriest
` o 0 oration and Maintenance. These costs include the ongoing, daily
expenses or parsonne , power, chemicals, routine maintenance;
stool
o Capital ex et~ditures reletipg to existing customers, These may
nc u e e t service or caah payments or t o renewal/replacement
of existing facilities, or to improve the level of service to
existing system customers (betterment); and
o C,.;,,~itl_expenditures relatin to future customers. These
expel tures may ni c ►ide de t serv ce or cas payments for the
expansion and extension of the utility system,
In order to assess likely impacts of a capital recovery fee on utility
rates and cash flow, it is necessary to establish current and future
operating and maintenance costs, and to examine future capital improvement f
programs of the water and wastewater utilities. In so doing, computer
models of the financial proforma balance sheets for each of the operating 3
utilities have been developed. These models are based, in part, on the
recently completed Reort on >;lectric, Vater and Wastewater Rate Study
(Management Applications Consulting, Inc, 0 December 1986), various water
and wastewater service planning reports prepared for the City of Denton, 1
and current capital improvements programs as prepared by the Utilities
Department. The models have been adjusted to account for January 1987
refinahctng of outstanding bonds. The net result of this .efinancing was
to lower annual debt service requirements fot both utility coarations,
dater system proforma data are presented in Table 4, w,,h 'lastowater systesr
proforma data in Table 3.
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FY IS 1Y 66 FY B7 FY 91 FY M FY 90 FY 91 1 FY 92 FY 93 FY 94 FY
MC)NEYf1PEM31 t1A381FICAI1DM Ill ;21 121 13) 13) 131 13) 1 !41 441 (4) (41
a..... I
44tH S4Ue INF 3,412 3,623 31611 31796 4,134 4,322 41472 ! 4,116 021 4,865 S,Oll
Revtnye11000 q+ls 1,31 1,3 1.92 2.46 2046 2.60 2.62 1 2;63 260 2.60 2.!1
1 6v124 6,226 6,104 6,'.•
MOM AetildMki+I 21330 31221 316n 51033 $238 $1707 111111 CW64rtl+l 21957 21117 11225 41394 4,510 4,411 311101 3.329
31491 !,171 0,177
kettle 190 194 411 310 321 312 3661 )96 409 429 411
98 103 111 161 147 16) 9441 202 20 :21 3:+
DIhH S+les . 1
6FfAA11N0 AEVfNif9 4,213 6j346 1140 91400 101296 11,223 11,612 1 12,042 !2,263 11.527 L c3!
Fk6•00RAIIIp kerMut 339 660 646 012 SS) 431 7¢t 1 100 60 60 604
. I
701A1 AI6$W 1,113 7,006 6,495 10,732 10,649 12,110 12,373 1 121642 12186) 13,227 11,691
Efr'iNO11UAES Ptrgend Eefwlt6s 1,135 1,111 11611 1,611 tom I'm 11424 1 2,021 21!27 2:274 21,31
SuoDli6s 234 441 263 261 211 294 lit 1 129 311 3k3 "i
Frodvcti0n Power 60 604 m 611 216 19! 639 1 4!S 424 1109; l,(1:
Nintin+na 601 203 620 984 1104) 113V6 1,112 ! (,215 1,?96 Ir3!9 ',t:l
Nnhiltd 1GIH 10 773 BSS 702 291 294 1 :00 344 it
Sarvites 161 :24 239 393 119 114 all : 46 '.21 ill '
Inlurms Ind Sundries it 24 11 511 619 147 136 774 6.°
AMA, Irmsftrt 602 %II 524 !01 !•48 !12 b)9 !42 2;! tt4 }!j
Noy h0trts P+v+ents 0 0 0 I'M I'M I.?4! 11421 ' ;,^OV 2.0^.
MA'. E.IFENOIIVNIS 4,196 41236 1.M J,664 t,!•N 7,23! P,2!1 ! PA! 9,025 '
L
tiE' i1fFA11!t: n1Y[NUfS •tl7 :',210. F,.'10 3,463 L:PS 4.)!4 4,112 ! !•0!l !.P:' : 1" 1
.
OE9J S£4Vftf 104EkR0E ri,S3 1.91 03 1,13 1.!! '..I! l,9! .,f4
(AFIt4t E Ot14k NG4.OPEA. FtP + 161 Sig 1 1:p 1'' 1"
i ,9611+1 l6D16r+ltntl s4i Bp8 1,0,1 43J ,91
f
;tot Shuts 9N7 1,4(16 112 2,1)5 21122 9.:31 411`.2 I mot !'Ea
{ Other 1196et +l prods) IS u V P 0 4 IV 10 0
E+d G111 21 34 it 50 S! 36 !6 69 76 r.
Peturn 0n I(I+eslithl $39 140 3d5 $42 373 312 SOG I 110 120 146 1y I'
Insre+t4Yn NO~king C~ptUi 0 .108 113. 7: 4 l'! I:+
IDIAI N9N BFfRA11N/ E1P. 1,2A4 2112! 21203` ),VII 2,415 2,441 2,429 1' 2,101 2,11! 2,771 2.10: I.
1
MAE PEA. 6 NON•OPM EIP, 31460 6,957 1,VBB 141693 90,504 10,103 ,11,340 1 111+19 ,1),)51 121144 121431
1 {
3334 n319 13193 133t3 EMS 132AY 11114 , 91913 01"A 31931 31}33 Li
40 WIN ILISS) mhl) 944 it '00? 949 IS40 11;371 Ii,163 I S1, 1'.d 111105 Il.ttl I1'N'
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Not tos111000 9+)s IMP 60.369 90,163 1004 14.511 10.413 10.463 ! 0.113 0,117 40,:11 1:,::•
0% Atlull 1 PY61OM Mod 29 M+y 1986 • OpetatiAq 9+,pget 1906.1181 1
121 141,14111d • ptOlom 1+116 26 All 1926 Optt6llrq NdgN 1488.1521 1
131 Clttttttd Pro49r++ d+led 18 April 1466 • ifptr4tt6q Mitt 1486.19811 P+qe 16 1
10 CM Eftle+tt 1
e
lY 8S FY B6 FY 61 1Y 88 FY H lY 90 FY 9k I FY 92 tY 91 FY 94 FY 9!
ItEWRl' MPME CLASSIFICATION (1) 121 12) 131 M 131 131 1 14) (4) 111 141
1
Wall Move) Cu6tewr 81116 118,IOS 18]1]45 1971133 206,989 2150269 223,879 2)2,815 1239,820 241,015 211,1
A'Hr44AII41 Cult "it 81114 151,21T 159,834 1611041 p6,239 383,219 1901620 1914215 1 204,192 210,318 Zlb,6:1 2;' ,t21
Avt. mmthty Cost/Plod1A11al tulto4►r 114] 11.51 51,51 12.34 12,34 12.34 17,14 1 11.41 !1.!B Il t! IL9t
' REVEAyE9 I
R41146A1161 poll 11162 11050 1,912 2017 2,262 2,M 1,447 1 2.310 2,413 2,515 :.NO
I COairtlll fall 21844 2,944 3,091 34162 1,601 31141 3,895 1 3,209 boll 1.0!2 612[1
NAo1►►el► File 202 213 223 250 260 110 281 1 292 )01 116 124
14lr4poVi Poo 1 0 1 9 10 10 10 1 11 11 12 12
We( 1111 Fit$ 2I 24 25 28 29 31 12 1 32 11 11 1a
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MAL CPERAIINB RE9E)LES 4,798 54039 Si"cF9 51924 61161 4,409 6,865 1 61715 6,659 '6,9!8 ],20!
NOn•4poillnp R►v►Au6 359 240 2SO 250 Y9 Z69 200 1 265 265 2}} 2k!
lOlAl P.EYENVES } 151 $1241 },514 6,174 6,421 61610 81945 I 6,640 6,924 J,:2! 1,!k0
C."UO! IMS 1
P►r14ni1 Skvu►a 916 11019 11181 11348 11434 I,580 I,]30 1 1,912 2,101 2413 2,:45
PrGduttltn POxar 110 119 ISO 161 117 188 199 1 211 224 1:? :11
SOS 1.6 015.11 663 146 ]16 10] 1 NO 931 404 a
F ~itot~Arot4 25! 218 2)7 290 301 126 345 1 111 +N Stn t'i
£4rnt6t 18; •471 ;68 121 JI1 Sal J85I 426 t!1 463
lAiura6c► J 3uAdr6 )1 62 60 15 P1 91 100 3U! I!4 1}! !;a
Adua, !rlpllrri }01 ITS 11? r6 }17 e11 101 I NS gel • r
!QtAI EIFEN01tlRE3 2151 1,810 1,0:6 ' 'S4 ) 810 t . i..3.
E P.I 1.211 , a6 1 r it tl
L PE1 CP[4AIlMOiEYEAUE3 !,1101 v'
.1 , 2io:9 2,141 2,11] 2ib10 1 i,('OS 17:1 1.2'3 ~
PUT SERVICE 64YERASE 1
41 2.U8 Ia02 J.19 'I'll +1OO 1.14 ! 18 ),!1 ~ •')„1
fAFiJAI.
4 OtNER t4N•OF(A. Eq.
f~pJtal IFl ivklM1U 1ST 286 691 59b 3 B !d7 Bb f 1} 1S +,r
I rev 3e/rIQ4 I UI: 1,!11 207 107 107 -69P 7 3 1 4)0
' ftt61 Elyerdllur►a o I
tad 44~t '14 15 3 !V II )2 i3 ! 34
Palm oA ImIa1H6l JPs 360 185 441 495 $44 $12 I 800 a2S a!0
IOIAL NON•OPCRAIIYO FUME Ii5P6 11822 11313 1,114 1,5'11 J;lb4 1,401 1 1.844 l16Y. L614 !
....r •r...
161A1 WA, A'rP-PEA, E1F, 1,}19 t,e)2 4,317 5,128 1122] 5,130 S,b19 I B :BI 6,644 1,r12 1,1'S
fl Mow 114.9 sitar out viola 1uu titan I trtt* 14tH it sir runt I
kELBAIN I1064S 1,410 61S 1,:00 I,O1b 1,441 94B 1,266 I 159 216 194 1!!
bE61 SERYM FER YOBTNLY 1 !
1 i
SE9100TIAL PILL11'0 LOS 3.16 0154 1,13 1.65 1,34 1.55 1.13 1124 1.t4 11C!
I
fl! Arlull • Frtl4r►i dated 26 May 1908 • Oplistl6g Pu4g6t 1901,1901 ! 1
12, E1U46led • Proleru dated 20 May 1986 • 0p"iIjAg 6u4gol 1986.1901
131 £IUMIJ • Aroldru dated 10 April 1906 00arilinl 0udg6t 1986.1781, Papl 16 1
!I1 CON Eai116ti.
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As noted in"Section 3, capital improvement programs were reviewed with
Department staff for the purpose of identifying those improvements, or
portions of improvements, that benefit either existing customers or future
ones. Through this process, it is possible to establish reasonably
accurate estimates of future capital expenditures targeted for each of
theme two groups. However, since the financial models extend beyond the
City's 5-year capital planning period, it was necessary to assume a level
of future capital expenditures beyond 1992. This was done by examining the
levels of currently planned capital expenditures for each utility and
adjusting theist to account for large, infrequent expenditures for projects
such as water treatment facilities, major treated water storage, and
similar items.
Using these models and projected levels of water and wastewater service
i
demands, unit costs for water and wastewater service for test years 1988
and 1993 were established. Further, these costs were dlsaggregated into
three components to show the portion of the unit service cost associated
with operations and maintenance (06M), capital expense benefitting existing
customers, and capital expense benefitting future customers. Those unit
service costs are presented in graph and table form in Figures 2 and 3,
Water Utility In 19881 as shown in Figure 2, capital expense benefitting
future customers is expected to be approximately 56 cents per 1,000 gallons
of water sold, or about 20 percent of the total cost per 1,000 gallons. By
!
1993, this capital expense can be expected to rise somewhat, while that
capital expense benefitting existing customers will decrease. Unit costs
for ON are expected to remain steady.
i
Revenues from the current rate structure, when supplemented by other
projected sources of revenues interest income) are expected to
generate approximately $2,20 per 1,000 gallons of water sold in 1988. This
represents a projected revenue shortfall of about 25 percent, It should be
noted that this revenue shortfall was identified in the Department's 1907
budget and capital program, and is due primarily to the City's payments for
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2.0 OffY OF DENTON '
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participatfo'n in the Ray Roberts water project. These payments are
scheduled to begin in 1988. The City is working with the City of Dallas
and the Corp* of Engineers to reschedule payments beginning in 1989. This
deferred, along with other adjustments to capital programming, will reduce
the projected revenue shortfall to approximately 9 percent in 1988 and 9
j percent in 1989.
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Wastewater Utility. While the overall unit cost of wastewater service for
the residential customer is not expected to rise significantly' between 1988
and 1999, there are major shifts in the relationships of the three
components of the bill. These shifts are indicated in Figure 3. Capitol
expense attributed to meeting future demand is projected at 87 cents per
residential customer in 1988, or about 8 percent of the average monthly
bill, projections indicated that this expense can be expected to rise to
approximately 14 percent by 1993. Capital expense for the existing
customer is projected to decrease from 20 percent of the monthly bill in
1088 to about 3 percent by 1993,
i Revenues from the current rate structure are expected to generate about
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$11 ,15 per month per residential customer in 1988. This level of revenue
meets projected expenses. Again, this was identified in the Department's
1987 budget and capital program.'
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M I Summary, Examination of revenue and expense projections for each utility
III indicate than ~i
f o A revenue shortfall of 25 percent can be expected in the water
utility in 1988 consistent with estimates contained in the 5987
budget and capital program= thJs shortfall is due primarily to
payments for Ray Roberts scheduled to begin in 1988. j
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o Revenue shortfalls are not expected in the wastewater utility, again
-consistent with estimates presented in the 1987 budget and capital
program
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Gity of Denton's Water and Wastewater utilities, are now
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financially sound. When combined with the Blectric Utility, this
financial strength is increased. While future race increases may be
necessary, they have been carefully identified and strategies have
been developed to keep the 'necessary adjustments reasonable.
` While it is possible to continue to rely on the customer beat to generate
revenues sufficient to meet all expense obligations, including those
expenses associated with meeting future service demandsp it may be prudent
to confider alternative revenue sources such as the capital recovery fee.
Such fees could assist in meeting the projected revenue shortfall
identified for the water utility, or could be used a meant of providing
3 rate relief in the wastewater utility,
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SECTION 5 - OPTIONS AND DOLLARS IMPACTS
PHILOSOPHY OF CAPITAL RECOVERY
The term "capital recovery fee" is generic{ different terminologies are
used for the some type of charge in various municipalities. The City,s
term, capital recovery fee, is quite apt as it describes the nature of the
charge, Throughout the remainder of this report, therefore, the term
capital,recovery fee is used,
The purpose of capital recovery fees is to recover the costs of expanding a
utility system to serve new customers directly from those nev customers.
It can be argued that imposing such charges results in a more equitable and
economically efficient recovery of capital costs than would occur if they
i were recovered solely through monthly water and wastewater servicoa charges,
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A rate structure is generally considered to be equitable when it requires
each customFr or class of customers to bear the costs which the utility
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incurs on its behalf, while recovery of capital costa through the wnter or
wastewater rates is commonly regarded as equitable, a close examination of
j cost conditions may reveal that under this approach existing customers
subsidize system growth and, therefore, new customers,
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Capacity to serve new customers must be made available from unused capacity
in existing facilities or by constructing now facilities. When capacity is j
j available fn existing Facilities, which were oversized to accommodate f
growth, recovery of the associated costs solely through user charges fails
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to recognize the investient'that existing customers have made on behalf of
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futuxe customers. Vhen additional facilities must be `constructed for new
customers, recovery of this investment solely through the rates also fails
to recognize the greater costs usually incurred as the result of inflation,
the need to develop more remote or lower quality water supplies, or the
greater distances over which water or wastewater must be transported,
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capital recovery fees are a tool for taking into account these cost
differences ind recognizing that new customers represent an increase in the
` cost to the utility as well as an additional source of revenue.
Economic efficiency refers to the ability of the utility's rates and
charges to encourage the visa use of the resources devoted to providing
service. to ensure that system expansion is economically efficient, new
r.ustomevs must be compelled to weigh the consequences of their decision to
seek water and, wastewater service where it is not available. In contrast
to including the coats of system expansion in the user charges, capital
recovery fees are a means of requiring nev,customers to consider the costs
of extending service to them, This is particularly important in light of
the competition that.may exist for a utility's limited capital funds and
the high priority associated with investments necessary to renew and
replace existing facilities to meet the needs of existing customers.
Capital recovery fees are widely accepted and utilized throughout the
nation. While there have been legal challenges from time to time
concerning level of charges imposed by ;utilities, courts have generally
upheld, the underlying validity of capital recovery fees
Several problems have been encountered concerning capital recovery fees,
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These problems are found in many Jurisdictions that impose these charges) I
the City of Denton is not unique in this regard. Simply stated, capital
recovery fees are frequently not understood by those persons aware of their
existence. Misunderstanding is fostered by a lack of knowledge about the
reason for the charge, the costs they are intended to recover, and the
basis for their development, Such misunderstanding results in the
perception that the charges are unmecessary, unfair or both.
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Problems can generally be classified into four rategorieat (1)
nomenclatural (2) disparities in amounts of the charges) (3) usage of
collected fees) and, (4) potential for challenges, especially by
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developers.
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As mentioned previously, a generic term for such charges is "capital
recovery fees". Examples of other nomenclature used for the saKe typos of
charges area
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s o impact feed
o system development charges
o capacity charges
o availability fees or service availability fees
o` connection fees
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I o , hookup foes
o development fees
There are undoubtedly other terminologies also used, Confusion can arise
from these nomenclatures, especially when terms such as "connection fees"
and "hook-up fees" Ave also used in soma jurisdictions to refer to the
charges for service line and meter installations.
Varying levels of utility capital expansion fees are encountered in
1 different jurisdictions, In a survey of these charges in Texas alone,
combined water and wastewater charges were found to range from $200 to
$2,400 per equivalent residential unit (ERU), This wide range indicates
that the bases used in developing the charges probably vary from
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jurisdiction to jurisdiction.
Legal challenges to utility capital expansion fees, especially by
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developers, are not uncommon. A charge which is perceived as excessively
high is frequently sufficient in itself to trigger such challenges,
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GOALS
In its basic form a capital recovery fee program is ddeigned to accomplish
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? tvo goals: (1) determine the costs associated with facilities that will
provide capacity or service to future customers, and (2) ensure that those
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vered from future customers Some, utilities uincludotal
mats are rI cA
recovery Eat programs to achieve additional goals which meY
ortion of capital facility costs on a cash basis
0 Financing all or a P
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through capital recovery fees
the use of long-tern debt instruments.
o Reducing or discontinuing
o control or redirection of growth to achieve in-fill rather then
peripheral or isolated d o
ver there are a number of variations in the manner in Which capital
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recovery programs may be structured to achieve all or a part of those
goals, 9ctb the current method as well as some of the alternative methods
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are described below.
CURR914T HUTHOU
Sincn the inception of its water and wastewater utility operations, the
of Penton has recovered capital expansion costs by including them in
city
the rate schedules that apply to all users of the systems, This has had
each generation of users to pay for both the then
the effect of causing
existing capacity needed to serve them as well as the excess capacity
required for future users. Because generational distinctions are blurred
fees
the initial use of a separate schedule Of capital recovery
over tinier crate capital costs between existing and
1 roquires careful analysis to sap
future users
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WITAL RECOVERY FFF,
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Method. Capital recovery fees are calculated under
Additions f
1 unit o
yenta
Incren• .
this MtNthod'using the incremental cost of providing the next system' For water
capacity in the various components of the utility'
`ecover fee Is the sum of tite incremental unit costs
vital r
service, the cap y
treatment, storage, and transmissions for wastewater service,
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for water t
treatment and interceptor costa This method,ie the same as that used by
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the Utilities Department in its 1984 capital recovery fee Analysis and
represents a method commonly used to establish the cost of the next
increment of capacity.
Calculations made by the City of Denton Department of 1ltilities during 1984
established approximate capital recovery fee levels. These calculations
used various factors to allocate capital costs of major system components
on the basis of the gallons per day requirement per household for both
water and wastewater flows. A suggested water system capital recovery fee i
of $875.00 per single-family residence was determined, plus a separate
wastewater system capital recovery fee of $450.00 per single-family
residence, giving a total fee of $1,825.00 for both services. As proposed,
the fee would have been split into three equal parts to be recovered fromt
o developer at the time of platting
o builder/homeowner
o or user charges in the utility rates
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f Although the fees determined in this way may now be somevhat outdated, they I
E do provide a means of examining the impact of a valid concept and a
poasible level capital recovery fee, Y
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The essential elements of the Department of Utilities work are shown on f
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component Additions. This method looks at the cyc?tu rather thar, the
incremental capital cost additions. cycles may span periods of five to
twenty years and are established in relation to the detailed capital
improvements program for each utility, .For example, examination of the
current water utility capital improvements program shows a major expansion
of treatment capacity And the addition of elevated storage over the next 3
few years, Beyond that; most other improvemehts are related to extending
{ the water transmission system. This represents a typical "cycle" of
caplt,tl improvements - an expattsion of treatment capacity followed by
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TABLE 6
Vater System'- Cost of Service Factors
Vat or Use 150 sped
Vater Storage 55 gpcd -
War Treatment Plant $ 1.50 gped
Transmission $ 450 sped
Storage $ .75 gpcd
water Treatment ?}.ant
i 150 gallons per day per person I
2,5,persons,per household
375 gallons per day per household
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I 375 x $1.50 - $562.00 Say $575,00/house
Vater Transmission
150 gallons per day per person
2.5 persons per household
375 gallons per day per household
375 x $0.50 - $181,50 say $200,00/house `
I water Storage
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150 gallons per day per person
2.5 persons per household
375 gallons per day per household
375 x $0,75 $103.13 Say $10000/house
TOTAL WAM SYTEM COSTS $875.00/houae
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TABLE y
wastewater system - Cost of Service Factors
(Gallons per Day per Person)
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vastewater Plov 125 Sped
Savage Treatment Plant $2.00 Sped
Interceptors/Pump Stations $1,00 Sped
Wastewater Treatment Plant
125 gallons per day per person
2,5 persons per household
312.5 gallons par day per household
312,5 x $2.00 = $625,00 Say $625;00/house
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i Interceptors/Fume Stations
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j 125 gallons per day per person
2,5 persons per household
4 312.5 gallons per day per household
312,5 x $1.00 b $312,50 Say $325,00/house
TOTAL WASTEWATER SYSTEM COSTS $950,00/house
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extension of4the transmission system. Hence, capital improvements '
accomplished during the cycle benefit new customers whose service will be
supported by the expanded facilities.
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Assessments and Pro-rata Cast Sharin6
By their very nature, many capital improvements are area specific. Most
sewage lift stations, many water pumping and storage facilities, and, in
some cases, interceptor lines and transmission mains fall into this
category. The benefitting development, ares, or customer, group can be
definedby location. Under these circumstances, recovery of capital costs
through assessment to the benefitting area may be possible.
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The result would be to align more closely the costs of providing utility
service with those who will benefit from it, The key to this approach,
however, is to clearly identify the benefitting area or group. When this
can be aa_omplished, the assessment or pro-rata cost sharing approach is a
valur}ble method for capital recovery.
Discussion
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Using 1988 as a specific example, water system capital costs that apply to
i future users represent $0.55 of every 11000 gallons sold. That element'can
be furthar disaggeegated to show that $0.27 is related to water treatment
k capital costs, $0.05 to storage, $0,05 to transmission and pumping
f stations, $002 to overslzing,and $0.17 to other capital improvement costs. ~
These data are presented in Table a for both the water and wastewater
systems.
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TABLE 8
Future Year Costs by Category
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Vatex S ste~e 1980 Costs
-$2.03
M Cap-Existing $0.17 ('$0.27 Vater Treatment
Cap-Future $0.56 ----->('$0,05 Transmission/Pumping Stations
( $0.02 oversize
(,$0.17 All Over
i TOTALS $2.76 $,0.56
arrywa+lrraaraarrrrr.. -r i
nar=v'JrOabagrtlYlerltgagrwbbNrra:Ygrwbrwrdraa'JVar';aYiYr
Vaster S stem 1988 Costs
0&M $8.08
Cap-Existing $2.31
Cap-FGtur.e $0.87 $0.32 Sewage Treatment
$0.05 Interceptor/Pumping Station
( $0.08 Oversize
f ( $0.42 All Other
TOTALS I
$11,26 $0.87 f
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According to. 1987 budget documents for the water and wastewater systems,
the capital improvement program funding is projected to be provided as
followac
Fundin7 Xater Vastevater w
5ycaten S stem
Source
Bonds 80.3% MOX
Revenuer, 9.7% 19.8%
'Aid-in-Construction 8.3% 2.6%
Other 1.7% 2.69
Total 10010% 100.0%
From the above table, it is clear that recovering bond-related costs (which 1
are used in part to finance the major increments of facility expansion)
through some program of capital recovery could have a significant effect on
the level of rates that are recovered by the monthly quantity-based
billings made to existing customers.
M an example, a water system capital recovery fee could be established
using the incremental additions approach, giving a. fen of approximately
$875.00 per equivalent residential unit. For 1988, this would generate {i
approximately $785,000 for a projected 900 new connections. This
translates into approximately 20 cents of new revenues per 1000 gallons of
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water that could be used to meet capital requirements of future growth.
Obviously, a higher capital recovery foe would have more impact. Other
methods of calculation as outlined in Appendix A, may result in
determination of a higher fee,
Similarly on the wastewater side, a capital recovery fee of $950.00 per
equivalent residential unit would generate approximately $855,000 in
revenues. This is approximately $2.08 per monthly residential bill.
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i j These rate related iMpactm, which would benefit existing customers, also
must be weighed against the impact of such fees on new housing costs.
There are differing points of view as to whom such fees are passed. Some
argue that the net impact is passed to the owner of raw lend in the fora of
` a lower selling price. Others argue that the cost is borne by the
developer/ builder in setting the price of his house against that of
existing housing stock built before the fee was in place. Still others
argue that the cost is passed on to the now home buyer. There is no way to
know with any certainty which of these viewpoints is correct.
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Presuming that costs are passed on to the new home buyer, the effect could
be to raise aonthly house paymc.its by an amount equivalent to the combined
water and wastewater fee ($1825.00) financed over the life of a normal
mortgage, say 30 years, At a borrowing interest rate of 10 percent, this
is approximately equivalent to a monthly payment of $16,00. Of course, all
j homeowners, including new ones, would derive benefit from the service rates
resulting from implementation of the capital recovery fee. For an average
! customer rising 10,000 gallons of water per month, this benefit is
! approximately $2,00 per month each for water and sewer service. Therefore,
the net impact to the new homeowner is approximately $12.00 per month.
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This is a simplified analysis, it assumes all fees are passed on to the j'
new home buyer] which as noted above, they may not be. Secondly, the j-
analysis assumes that capital recovery fee revenues would be used to retire
indebtedness incurred by the Utilities Department. If, however, fee
revenues Fire used to cash finance capital improvements, the long term
benefits to existing customers could be more significant since some future
bond interest costs might be avoided. Therefore, this analysis may tend to
overstate impacts on future customers and understate benefits to the
existing customer.
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SECTION 6 - OTHER CONSIDERATIONS
LEGAL CONSIDERATIONS
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M Numerous utilities throughout the United States have successfully
{ implemented capital recovery fee progress during he past twenty-five years.
Based on s survey (317 requests, 90'rerponses) conducted by Texas A8N
University during 19860 there or* at least thirty-seven T*xas cities using
some form of capital recovery fee program, the earliest dating from 1978.
Two of the thirty seven cities have encounttred'legal challenges. In one
case the legal argument was based on the allegation that the particular r
program was structured as a taxing device, rather than as a means of
i associating program revenues with the capital expenditures required to meet
demands caused by growth. In the other case the legal issue was narrowly
confined to whether a capital recovery fee could be applied to a school
district (Lewisville School District vs. City of Flower Mound), There have
been no appellate decisions in Texas on challenges to capital recovery fee
programs per se. There have been decisions regarding other exactions
similar to capital recovery fees in nature and intent. Cases from Texas
and other states are noted in Appendix B. j
A 1976 opinion of the Supreme Court of Florida (Contractor's and Builders
Association of Pinellas County, et al. vs. City of Dunedin, Florida, 329
So. 2nd 314)'provides guidance for developing a capital recovery fee.
Dunedin upheld the legal authority of A municipality in the State of
Florida to impose capital recovery fees on new users of public water and f
wastewater systems. The court rejected the notion, advanced by opponents
of the fee in that case, that a capital recovery fee is in unconstitutional
tax. The statutory authority of municipalities to establish ",just and
equitable rates or charges for water and wastewater systems was viewed as
authorizing the imposition of such fees. The opinion further°provides
specific guidance for establishing capital expansion fees.
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The guidanc found in Dunedin can be expressed in terms of the following
four rules, each of which should be met to ensure the legality of a capital
expansion fee structure:
o The fee actually imposed may not exceed the rho rata share of the
costs of expansion.
o The costs recovered by the fee must be reasonably anticipated costs
of expansion,
o Expansion must actually be required to serve new users.
o the funds collected may be used only to pay costa of expansion.
The first three rules are applied in evaluating the legality of alternative
fee methodologies, since they relate to the question of how fees are
established. The fourth rule relates not to the methodology for computing
the fee, but rather to how the funds are ultimately used
From the legal perspective there are four primary elements that should be
included in the enabling ordinance,
j 1. The putrposse of any capital recovery tee promo ram should be
ex. plicit~y Stated, I
This can be in the form of identifying the program in relation to
those capital facilities needed to provide service for future'
customersl by naming the costs that are not to be included such as CCC
renewal, replacement, or renovation] or both.
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2. Use of the revenues received from a capital recover fee program
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s`VoulT e carefully defined.
Revenues, and the interest they may earn, should he restricted so
that they cannot be used for purposes other than construction of
capital facilities to serve future customers,
3. The accounting procedures and controls associated with the capital
recoveryie a program should-be delineated,
The legal purpose served is to provide a demonstration that the
funds are utilized for the intended purposes.
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4. All~apecial considerations exce lions and restrictions should be
sae out.
if the City finds there is, or may be, a need to apply special
provisions or exceptions to the basic program, these should be a
part of the enabling legislation. Examples include new service _
provided to other governmental jurisdictions, overlapping service
area's, and facilities required to treat toxic wastes generated by
new industries.
In addition, to the four elements noted above, there are legal,
administrative, and practical reasons for preparing a carefully worded
definition of "Capital Recovery Fee." The following working definition was
presented to the Committee=
"A CCa ital Recovery Feee is assessed to property owners or
deved-oper~ s for tile purpose of recovering all or a portion
of costs attributable to utility system expansion
nochssitated by new development.
The Cari_talRecoveq Pee is used to pay the host of
expanding off ,site water and wastewater facilities. These
facilities include water treatment and/or wastewater
treatment plants, off-site water transmission lines,
overhead water stovaG,re facilities, water pumping stations,
off-site sewer outfall lines, sewer lift stations, and
the overslziog of oo-site and off-site water and sewer
dines,
i`costs for replacement, renewal, upgrading, Arid maiutenance f
of existing facilities are not available for use of '
CagitalRecovery Pee revenues, I
Capital Recovery Pees shall be maintained in accounts
separate from all other Utility Department fee and revenue
1 accounts, and may be expended only for purposes relating
s to the coats of facilities required to provide service to
new development.
Interest earned on Capital Recovery Fee revenues will be
maintained in accounts sepdrately from all other fees and
revenue accounts. Such interest earned will be expended
only for purposes relating to the costs of facilities
required to provide service to new development,
The Capital recovery Pee will be imposed throughout the
service area of the water and wastewater,system as defined
;yam in Figure 1,
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EXPBSNCB OFFS
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At the request of the Coemittee, an informal telephone survey of some of
the TexAs cities that are utilizing a capital recovery fee prograa was
conducted. Results of the survey suggest the followings
respondent economic growth concern was a negativelyeAmpacted,rfively
o Impact
on felt that growth had been
couldnot determine any impact, and one speculated that the program
had positive impacts, (This was the result of city expenditure of
collected fees to provide a well supplying water to a now
development as well as increasing the city's overall supply).
I o Most of the communities indicated that their programs were
successful, One suggested that theirs was unsuceassful only because
litigation had been filed against the city,
o No one cited "rate relief" as a result of having implemented the fee
program. However, the use of fee revenues to construct capital
improvements infers a deferral of rate increases,
Several of the communities noted that tthorough engineering analysis is an
important step in setting the fee at an appropriate level and in justifying
it to the public and interest groups, If they had it to do over, a more I
"professional" job would have been done,
ENOTNEERINC CONSIDERATIONS
k The City's Capital Improvement Program (CIP) was examined from several
points of view, First, there are sufficient engineering anrlyscs,
(performed by other consultants to the City of Denton) to support the need
for the major capital improvements listed in the CIP document. Second, the
program is presented in 43nough detail so that rational allocations of
y future year capital costs between existing and future customers can be
made. Third, the Utilities Department maintains records that are suitable
for the purposes of this study and which support the preliminary
calculation of various realistic ranges of possible capital recovery fees,
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During the course of this phase of study, the Committee was apprised of a
bill perteinipg`to capital recovery fees pending before the current session
of the Texas L4gislature, This bill, in it current form, specifies the
methodology to be used in determining the level of a capital recovery fees
seta certain administrative procedures to be used in the setting,
collection and refunding of such fees and provides for an advisory
committee to 'oversee the planning used to support the fee as vell as the
use of the collected revenues.
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' This is the third version of the bill, is the result of compromise betveen
the Nome Builders Association and the Texas Municipal League, and is likely
to be adopted. As of this writing, however, the bill is pending.
While the proposed legislation does provide guidance as to method and
4 program requirements, those requirements must be weighed carefully, A full
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reading and understanding of the policy and administrative implications of
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~ the bill should be developed by the City A copy of the most recent
version of the bill is included as Appendix C.
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SECTION 7 - FINDINGS AND RECOMMENDATIONS
FINDINGS .
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1) The. City of Denton's Water and Wastewater Utilities now are
financially, sound. This in some part is due to the strength
exhibited by the combined utilities, include electric. Clearly,
the Water and Wastewater Utilities benefit from this combined
approach.
2) In the Water Utility, payments for the City's participation in the
gay Roberts Project are scheduled to begin in 1988 and area
='primsry cause of a projected 25 percent revenue shortfall in 1988.
This probltmp however, was anticipated and the city is working with
the city of Dallas and the Corps of Engineers to defer payaknts
until 1989, This -effort, combined with other adjustments in
j capital programming, could limit necessary rate increases to
approximately 9 percent in both 1987 and 1988.
3) In the Water Utility, capital expense relating to future growth is
expected to rise from approximately $0.41 per 1000; gallons to
$0.56 between 1967 and 1988. This expense is projected to rise to
$0.63 per 1000 gallons by 1993. Total expenses (capital Llus
operating) for these years are $2.01, 2.76 and 2.73 per 1000
gallons, respectively,
4)_ In the Wastewater Utility, capital expense relating to future
growth is expected to rise from approximately $0.67 per monthly
residential bill to $0.87 between 1987 and 1988. This expense is
projected to 'rise to $1,64 per month by 1993. Total expenses
(capital plus operating) for these years are $9.89, $11.26 and
$11.96 per monthly residential bill, respectively.
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5) From an equity standpoint, the Committee generally favored j
recovery of growth-related capital expense using a fee or some
mechanism other than monthly service charges to all utility
customers,
6) A capital recovery fee ran shift the cost of growth-related capital
improvements from all system users to those groups whose needs are
growth related and is an acceptable and equitable method of
restructuring the City's schedules of rates and charges for Water
and Wastewater Utility services, and is an acceptable and equitable
method of restructuring the City's schedules of rates and charges
for Water and Wastewater Utility services.
7) There appears to be ample legal precedent in Texas and in other
states to support a capital recovery fee ordinance by the City
Denton.
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8) A bill pending before the Texas legislature may pre-empt the
ability of cities to enact capital recovery fee programs
specifically designed to most specialized needs; the bill sets
methodology and outlines extensive administrative procedures.
Recommendations
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As noted in Section 5.0, the level of capital recovery fee revenues
available to the Stater Utility from a fee of $875.00 per equivalent
residential connection would represent approximately 20 cents per 1000
gallons of rater sold. This is substantially less than the cost of 56
cents per 1000 gallons associated with financing growth-related capital
improvements, This in part is due to the interest costs of financing such
improvements through bonded indebtedness, However, in order to have more
impact, any consideration of capital recovery fee should be accompanied by
some additional policy changes. These are summarized as follovsi
o Because future water supply requirements, as well as the need for
additional water and wastewater treatment capacity, can be sharply
defined, both in terms of quantity and allocation between existing and
future customers, the use of a recovery fee appears appropriate for this !
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class of assets,
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o Transmission mains, interceptors, and both ground.-level and elevated
storage facilities represent a group of capital improvements that can
have widely varying demands placed upon them by existing customers and
future users. It may be most appropriate to expand the use of the
present City-developer contractual arrangements to include these types
of capital costs. This is especially applicable to the oversizing of
transmission mains where the capacity to serve planned developments is
the heart of the issue. Specifically, reimbursements for oversizing
t should be made part of the pro-rate repayment schedule, This will shift
additional responsibility to the developer, but will (1) spread the
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APPENDIX A CRP METHODS
VALUE OF SERVICE
This method considers the policies and levels of capital coat recovery fees
'hborist Jurisdictions. Indirectly thin approach approximates the
in ne
value placed upon the availability of water and wastewater service.
aarket Q
It provides a generalised test of the reasonableness of fees that may be
proposed by the City of Denton,
information of this type was presented at the initial meeting ort the
citizens, committee as related to the cities of Yore Yorth, Plower Mound,
Cornith, Lewlsville, and Austin,
pees developed using this method arc difficult to Justify both
t%L11efna;icdlly and legally, although this approach doer furnish valuable
compaeative informationl
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gLrT BUY-IN METMUD
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Under this methodology it is recognized that each n: connection is placing
a demand upon an established water and wastewater system. Each of those
new service connections should contribute on a proportional b' s to
support the assets which comprise the system. Various techniques can be
used to determine.the value of the system into which the new connection is
buying. One method is to use the historical gross book value of the system
assets. Another technique uses estimgtes of the current replacement costs
of fixed assets for existing system capacities. Some authorities believe
that accumulated depreciation should be deducted
proper buybinkprvalu
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or from the current replacement cost to
Others hold that this consideration is relevant only when estimating the
current value of a system. Since the utility has a perpetual obligation to
provide service, and because the capital recovery fee is a one-time charge,
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depreciati4 -is not a valid deduction when utilizing the system buy-.in
method. Vhen a customer connects to facilities that may be almost totally
depreciated, replacement units must be provided without an additional levy
of capital recovery fees.
Another method is to deduct from the gross book value of fixed assets the
principal amount of debt related to the water and wastewater systems. This
value represents the equity of the system into which the new connection Is
buying. This approach recognizes that the new customer should only pay
up-front for the pro rata share of equity since the customer will i
subsequently be defraying the cost of debt through user charges,
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MARGINAL/INCRENENTAL
Underlying this method Is the concept that new users of the system pay a
charge based upon the unit cost of the most recent or next increment of
system expansion, Generally system expansions provide excess capacity
which can be used by future customers,
Because the city of Denton maintains a detailed capital imptovement program
on a project by project basis, this method has the necessary supporting
data. Projects require further analysis as to the cost allocation between
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required and'exeess capacity,
Por water systems there is a need to analyze capacity costs in terms of
peak hour and maximum day raquirements, and in relation to fire flovai,and
for wastevater systems to determine peaking requirements and the elements
of infiltration and inflow under both dry and rainfall conditions,
Generally this method is reasonably accurate and prc,vides a defensible
method for establishing capital recovery fees,
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DEST SERVIdS -APPORTIONMENT
This approach involves the consideration that a capital recovery fee should
recognise the capital component that is included in the user charge system.
It includes the following steps
1. Estivate the total capital investment needed to serve new
connections during the next twenty years.
2. Calculate the present worth of those investments using an
appropriate discount rate usually one that reflects the
differential between the estimated cost of capital and the
anticipated gate of inflation.
i 3. Calculate the annual debt service amount required to support a
present day investment in the future facilities.
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41 Based on population forecasts, determine the equivalent residential
units over the twenty.-year period, and, using annual debt service
re4uirements and annual FRU additions, calculate the capital
recovery fee.
51 Deduct from the calculated fee the portion of debt service that 1s
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being recovered under the exisling schedule of user rates,
COMPONENT CASH FLOW
This method considers the cash flow generated from new connections in
conjunction with incremental increases in system capacity.; In systems E
having relatively uniform growth characteristics coupled with fairly level
annual expenditures for capacity expansion, this method as generally
applicable.
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Under stable conditions the capital recovery fee can be based on the unit j
value of the cash flow in relation to the annual expansion costs.
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In most cases this method is partleularly appropriate for systems that are
almost completely developed throughout the service area, with only isolated
parcels remaining to be served.
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MAJOR FACILITUS
Rather than attempting to examine every capital improvement project and
essign individual grovth/non growth factors, $ORe utilities structure their
capital recovery fee programs around only the major system components.
These includes
Vater Treatment and Vastewater Treatment Plants
Source of Supply Facilities
Storage Facilities f
Pumping Stations
Major Transmission or Interceptor Lines
This type of program structure can focus on the required, cash outlay, the
principal and/or interest components of debt service, or the amount of
capacity set aside.
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EXISTING INVESTMENT
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Capital recovery fee prograos can be based on the dollar amount that has I
previously been invested to provide service to each customer within each r
customer classification. These unit values, following adjustment for
inflation and depreciation, can be equated to the investment required for
each future euntomer. In this way the cost to both existing and future '
customers can be equalized.
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This method Is roughly analogous to conventional L~sessment district
I proceedings in which' the facilities costs associated with a`specific area
j are recovered from those who des-Ave direct benefits from the Improvements
serving that areA.
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Under this method the cost of providing a single-family water supply (for
example) in one area may be different than the cost of providing the same
type and degree of service in another area,
COST UP SERMO 1ponents.
Under this method the cost of service as it relates to capital facilities
can be measured in terms of number of residents by housing typed number of
roomal assesked valued square footage= count of water or sewage devices-
such as faucets, toilets, wathing machines= analysis of billing records to
determine actual water consumption for each customer classification; sewage
flows can be directly measured or inferred from water consumption records
Each of these methods attempts to achieve greater levels of equity in
recovery of capital cost expenditures from those who receive the benefits
of the services provided.
CASE BY CASE BASIS
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Some utilities structure their capital recovery fee programs in relatively
broad terms providing them with the ability to individually examine each
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request for new or additional service on its merits
This method has the advantages of flexibility, a relatively low
administrative burden, and the opportunity to structure capitol recovery
fee contracts according to the specific conditions,
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Potential disadvantages include the concerns that each landowner,
developer, subdivider, or homeowner may not experience identical equity
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OTHER ALTMATIVES AND CONSIDERATIONS
Some utilities have structured their capital recovery fee programs to
recognise the probability that all developable land will, sooner or later,
be developed.. „ On this basis they have adopted schedules of availability
fees or their equivalents that require an annual payment for each unit of
undeveloped landi vith those revenues earmarked for major capital
construction.
Some utilities have adopted the position that their service areas are
highly desirable locations for residential, commercial, or industrial
development and that those who wish to establish themselves therein should
pay all associated capital costs to advance, One variation to this
approach has been applied to developers who make substantial "up front"
contributions of cash or donated facilities that havea future or second
phase component. These developers are given capital cost credits to be
Applied against a future increment of development.
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AppWDIX 9 - LEGAL CONSIDERATIONS
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LLOYD, GOSSELINK, RYAN & FOWLER, PX,
Atloinoys at LW
MW Offi& box 1725 Austin, Texas 78767
ROBEtit It. LLOYD Office (512) 4724551 LESLIE E. 1lAkRAS ~
PAUI,G.GOSSELINKTek tipkr(512)47241512 11AIMIATHEWS
DR ENT W RYAN TLRESA IS. SAI-AXIONE '
kO8ER7 D. FOWLER CEOR(1E V. DA51IAM III
CHESLEY N, BLEVIN5 LAURIE A. AkC1,0KEY
j MARTIN C. ROCHELLE:. , S. BUTT ROBINSON
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J,:nuary 15. 1987
FEDERAL EXPRESS
Mr. Roger Hartman
Camp Dresser & McKee
2300 15th Street
d Suite' r.00
Denver, Colorado 80202
! Ret 698001 (3) Capital
Recovery Fees in Texas
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Dear Rogerf
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Enclosed please finds
1. Various cases from both Texas and other States,
A. Texas
(1) ger Development v. City of Missouri City, 603
3.W.2d 273 'i
Tex. C v. App.ouston 4th DTsC.)
1980, writ ref'd n.r.e.)t
(2) 'Davis v. Bartonvillo Watersu' l Cor oration,
678 S.W. d 297 TeX. App, - Fort Worth 19134, no
writ)t
(3) City of C0110CAe Station v. Turtle Rook '
Curporation,'~~B.W.2d 802 Tex. 1984
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9, Other States
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I (1) City of Dunedin v. Contractors & Auilders
Assn. -of ne2,la~sCO~u~nty, 312 so, 2d
763 Fla, b st. Ct:- p 1975) I
H15 aml.oy, Sow I I(MI Onuns,ll ,NItilh ylreci Aualbi, TerIs0H7111
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Mr. Roger Hartman
t,--~ January 15, 1987
Page 2
(2) Contractors & Builders Association of Pinellas
Count Y. City of Dunedin, 329 So.2d 314 Fla.
T-976-) cert. denied, 444 U.S. 867 (1979)1
(3) Home Builders & Contractors Association of
Palm Beacl, County, Inc. v. Board of County
Com-gym eesibiiers of Palm Beach Count y,# 456 So.2d 140
Fla. Mgt. Ct. App. 19 4 T
(4) Hillis Homes, Inc. v. Snohomish Count y# 650
P.2d 1983 Wash. 1982)t
(5) Knollwodd Horizons, Inc. v. City of Freeport,
357 N.E.2d 713 111. Ct. App, 1976)1
(6) Lou Miller Construction Com an , v. City of
Denver, 676 P.2d 1170 Colo. 19B4)1
(7) J. W. Jones Companies v. City of San Diego,
157 Cal. App. 3d 745, 203 Cal, Rptr. 580 1984)1
(8) Coulter b. City of Rawlins, 662 P.2d 888 (Wyo.
1983).
2. Austin, Tex., ordinance 851003-J (Oct. 3, 1985)t
3. Various law review and other articles. E
a. B. Kennedy, vital Recovery Fees - Making
Developers Pay Their_ W October 1984
b. A. Nelson, Affordable Housing and Equity
Considerations of Development Im aet~i'ees (I986)t
C4 Morgan, et al., Drafting Impact Fee Ordinancesi
Legal Foundation for Exceptions, Part fl, Zoning and `
Planning Law Report, Ju y-AUgust 1986.` at 491 {
d. Duncan, et al., Draftin Impact Fee Ordinancest
Legal Foundation for Exceptions, Part II )o zon t►g and
Planning aw`Report, September 1986, at 57.
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The most significant finding of our research is the fact that
there is no appellate law in Texas specifically on capital
recovery fees. A_capital recovery fee is referred to as an
impact fee in other jurisdictions. We have attached case law
which discusses impact fees in those jurisdictions and advise
that the analysis in the attached cases could be applied i.n
Texas. To the extent that a "fee in lieu of dedication" is
construed as an impact fee, then the analysis provided in the
attached Texas case ot• Cit. of College Station v. Turtle Rock
cnrp,. is useful in anaLyzing one method iy which a capital
recovery fee ordinance might be judicially reviewed. However, I
believo that a capital recovery fee is distinguishable from a
"fee In lieu of dodication" based, among other reasons, on the
capital recovery fee's special ability to aid in funding
projects outside the specific area for which the fee is being
419ses8ed. In other words, the capital recovery fee's greater
flexibility as a growth management tool also lead3 to a different
standard of legal review.
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Our review of the cases to date indicate that the most 1
successful method of attacking impact fees is on the basis that 4
they are in actuality a disguised tax. However, due to the
budget circumstances discussed above, we have not completed our
analysis of that issue.
I, specifically address your attention to the first part of
the two-part article in 'the Zoning and Planning Law Report {
entitled "Drafting Impact Fee Ordinancesa Legal Foundation for
Rxactions." I ;find this article to do a very good job. in
answering he questlon which you and I have discussed - What
concerns should the City of Denton have in drafting a capital
recovery fee ordinance? If you review the nrtiele, you will note
that there is some discussion of Texas cases that we have not
enclosed. We have not enclosed those cases because they deal `
specifically with zoning and eminent domain and not with impact.
fees. While these cases might be useful in developing a
counter-argument to a constitutional attack on an ordinance
Mr. Roger Hartman
January 15, 1987
Page 4
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approving capital recovery fees, we did not understand the scope
j of our assignment to include such an inquiry at this time,
I have conducted some preliminary follow-up on the Flower
Mound case in that I have contacted the lawyer representing the
City of 'Plower Mound and asked for copies of his briefs. As I
understand; the issue in that case, the challenge was not to the
ordinance itself but to the applicability of the ordinance to
school districts. As you know, the district Judge, ruled that the
capital recovery fee was a tax and, therefore, could not be
imposed on another local governmental entity. I am told that the
court did not rule that because the capital recovery fee was a
tax, the fee was 'invalid.
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We hope the foregoing discussion and the attached materials
help, If you want a more formal memorandum, please let us know,
if the City of Denton decides to pursue the capital recovery gee
method for providing infrastructure financing, we will be happy
to assist you in drafting an ordinance or any other matter you
request,
Sincerely,
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Paul G, Gosselink
PGG/cr
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Enclosures
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2Cj69800.1/2 i.
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APPENDIX C - PENDING LEGISLATION
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Draft 6/4/07
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0Y NO. E'
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A BILL TO !E CMTITLED
1 AM ACT
2 relating to the imposition of fees to finance capital
E 1 improvements by political subdivisions.
L 6 BE IT ENACTED BY THE LEGISLATURE Or THE STATE OF TEXASi
5 SECTION It DEFINITIONS, In this Acti
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6 (1) Atnortixed oharge means an impact lee Paid in
7 pro-determined increments over a predetermined period of
8 time, An amortized impact fee shall be tied to the property
9 on which it is levied and the obligation for the uhpicd
10 portion of the fee shall transfet along with any transfor
11 record c-dneeship of the property, Notice of any due ar.
12 unp.,id amortized impact fees which become due after the i~
11 certificate of occupancy is issued shall be recordable in
11 the property tax lien records in the office of the clerk for i
15 each county in which the property is located, if properly
16 recorded, such unpaid feet shall create A lien upon the
17 property. A lien shall not be effective against a home
10 stead. if property on which an amortised Impact fee txiatt
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1$ it subdivided, the governing body of the political tub
20 division shall apportion the charge among the new service
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21 121 "Capital improvements plan" means a plan required
21 by this Act which identifies capital improvements or lacil- ii
1 Y P pursuant to which impact feat may be
26 it ex anSVOne
25 assessed,
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1 (3) "Capital improvement" means water supply, treat-
2 ment and distribution facilities) wastewater collection and
2 treatment faciliti611 store water', drainage and flood.
1 control facilities) whether or not located within the
5 service area, or roadway facilities{ with a life expeotancy
of three or more years, owned and operated by or on behalf
7 of a political subdivision,
8 16) "!'agility expansion" means the expansion of the
9 capacity of an existing facility which oervae the same
10 function as an otherwise necessary new capital improvement,
11 in order that the existing facility may serve ne4w devalcp-
12 ment. "Pac11J.r± expansion" does not include the repair,
13 maintonanca, modernisation, or expansion of an existing
14 facility to better serve existing development,
15 (5) "Impact fee" means a charge or assessment imposed
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16 by a political subdivision against new development in order
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17 to generate revenue for funding or recouping the costs of
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lA capital improvements or facility expansions necessitated by
19 and attributable to such new development. As used in this
j 20 Act, the term "impact foam includes amortized charges as i
21 well as lump-sum charges and includes capital recovery tees,
22 ocntributions in aid of construction, and any other fee
22 which functions as described in this definition.
24 Impact toes do not include (a) dedication of land for
25 public parks, or payment in lieu thereat, to serve park
26 needs or Ib) dedication of rights-of-ways or easements or
27 construction or dedication of on-sita water distribution,
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I wastewater celleotion or drainage facilities, streets,
2 sidewalks or curbs, when such dedications and Construction
3 are required by valid ordinances and are necessitated by and
{ attributable to the new developawfntt provided, however, no
5 item which Is included In the capital improvements plan
6 shall be required to be constructed, except pursuant to
V 7 Subsection th1(2) of section 2 hereof, and no owner shall be
• 0 required to both construct and dedicate facilities and pay
9 Impact tees for the same facilities,
10 16) "Land use assumptions" include a description of
11 the oervico area aad projections of changes in land uses,
12 densities, intensities and population therein over at least
1) a ten 110) yesr pariod,
14 (7) INew development" moans the subdivision of land,
15 or the construction, reconstruction, redevelopment, conver.
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16 lion, structural alteration, relocation or enlargement of
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17 any struaturei or any use or extension of the use of Lando
18 any of which increases the number of service units, +{i
I` 11 19) "political subdivision" means a city or town,
1 20 whether operating under the Caneral Lau or under special or
21 home rule charter, a district or authority created under
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22 Article tit, Section 52 or Article XVZ, Section 39 of the
23 'texas Constitution, or certain counties as defined In
24 Section 10 hereof,
21 191 "Roadway facilities" means arterial or collector
26 streoto or roads which have been designated on an officially
f, 27 adopted roadway plan of the political subdivision, together
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2 roadways or associated improvements designated on the
9 federal or Texas highway system,
4 (ld) "Service area" means the area within the corporate
S boundaries, or extraterritorial juriadiotion as defined by
6 Article 970x, of the political subdivision to be served by
7 the capital improvements or facilities expansions specified
8 in the capital improvements plan, except roadway facilities,
9 The service area, for the purpose of this Act, may include
10 all or part of the land within the political subdivision or
11 its oxtraterritorial Jurisdiction, except roadway facili-
I, es, p,r r::idway facilities, service area is limited to ar.
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13 area within the corporate boundaries of the political
14 subdivision and shall not oxcood a distance equal to the
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15 average trip length from the now development, but in no
16 event more than three (1l miles, which service area shall be j
17 see.od by the roadway facilities designated in the capital
18 improvement plan,
' 19 (11) 'Jorviae unit" means a standardized measure of I
20 lonsumptton, use,
generation or discharge attributable to an
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21 individual unit of development calculated in accordance with
22 generally accepted engineering or planning standards for a
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particular category of capital improvements or facility
24 expansions, 13
25 SECT,'M 2, AUTHORtZATtON or IMPACT FEE, (a) Unless r
26 otheraiso specifically authorized by law or this Act,,,,no
27 governmental ontity or political subdivislon shall enact or
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1 imp06e an i"paot fee. Political subdivisions are authorized
2 to enact or impose impact feel on land within their eor•
l porate boundaries or extraterritorial jurisdictions only by-
/ complying with this Act, except impact fees shall not be
S enaoted or imposed in the extraterr.itorsal jurisdiction for
0 roadway facilities,
7 fbf An impaot fee may be imposed only Co_pey~the~co~ts
0 of constructing capital improvements or facility expansions,
9 including and limited to the construction contract price,
10 aurveyinq and engineering fees, land acquisitions coats
11 H ncludinq land purchases, court awards and costs, attorneys
12 fens, ant expert s+itness fees!, and the fees actually paid
11 or contracted to be paid to an independent, qualified engi-
14 neor or financial ccnsultant preparing or updating the
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14 capital improvements plan, who are not employees of the j
16 political subdivision, interest charges and other finance
17 coats may be included in determining the amount of impact
10 fees only if the Impact fees are specifically pladged or
19 otherwise contractually obligated to the payment of prim [
20 cipal and intermit on bonds, notes or other obligations i
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21 issued by or on behalf of the political subdivision to
22 finance the capital improvements or facility expansions
21 identified in the capital„ improvements. plan,
24 Ic1 impact fees shell not be adopted or used to pay
2S for any of the following
26 f11 the construction, acquisition or expansion of
27 public facilities or assets other than capital improvements
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I or facility expansions identified in the capital ilaprovs-
2 Monte plan. ?
3 12)( Aepair,op#ratiort; or Maintenanoe of existing or
1 new capital improvements or facility expansions,
6 (3) Upgrading, updating ansion or replacement of
6 existing capital-•improveawnts.to serve existing development
j 7 in order to meet stricter safety, efficiency, environmental
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9 (1) Upgrading, updating, expansion or replacement of
10 existing capital improvements to provide better service to
11 existing devolopmant,
12 !51 Ad.ninistrati^e and operating costs of the politt-
13 cal subdivision,
l/ (6) Principal payments, interest or other finance
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15 charges on bonds or other indebtedness, except as allowed by k
16 Subsection Ibl of Section 2,
11 (d) Tho political subdivision shall use qualified
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18 prof ass ionaIs to prepare the capital improvements plan and
' 19 to calculate the impact fee, The capital improvements plan
20 shall contain specific: enumeration of the following itemsc
21 111 A description of the existing capital improvemerts
22 within the service area and the costa to upgrade, updeee,
23 improve, expand or replaoe such improvements to moat
eras- 24 tang needs and usage and stricter *afaty, efficirncy,
25 environmental or regulatory standards, which sha16 be
26 prepared by a qualified professional engineer licensed to f,
27 perform such professional engineering aurvices in the State
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2 of Texas,
2 {2) An analysis of the total capacity, the level of
1 currant usage and Commitments for usage of capacity of the,
` 4 existing capital improvewts, which shall be prepared by a
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` 5 qualified professional engineer licansed to perforwi such
6 professional engineering services in the State of Texas,
7 131 A description of all or the portions of the
A capital improvements or facility expansions and their coats
9 necessitated by and attributable to new development in the
10 service area based on the approved land use assumptions,
11 which shall be prepared by a qualified professional engineer
1.2 licensed to perform such professional engineorinq osr,icns
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13 in the State of Texas,
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14 f41 A dofiniuive table establishing the specific level
15 or quantiey of use, consumption, ganerat{,on and diochArge of
16 a service unit for each category of capital improvements or
U facility expansion$ and an equivalency or conversion table ,
16 establishing the ratio of a service unit to various types of
19 land uses, including, but not limited to, residential,
20 commarcial and industrial,
21 (5) The total number of projected service units
22 necaasitatad by and attributable to new development within
21 the service area based on the approved land use assumptions
24 and calculated in aecer'46ea with generally accepted engi-
25 nearlnq or planning criteria,
26 {6) 'rho projected demAnd for capital improvements or
27 faollity expansions required by new service units projected
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I owr a reasonable period of time not to exceed 10 yee;ta,
2 (7) The impact fee per service unit shall not exceed
3 - the vaunt detereined by dividing the costs of the capital.
/ improvements described in (31 by the to 11 nuaabor of pro-
s looted service units described in (s), It the number of new
6 service units projected over a reasonable period of time is
! 7 leis than the total number of new service units shown by the
s approved land use assumptions At full development of the
9 service area, the maximum impact fee per service unit shall
10 be calculated by d!,viding the oosts of the portion of the
It capital Improvements noceseitated by and attributable to
12 projected new service units described in 161 by the rr--
11 jetted now service units described in 161,
14 (el M This subsection applies only to impact fees
is adopted prior to the effective date of this Act, for land
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16 which has been platted !.n accordance with Article 974a,
17 Texas Revised Civil statutes, and/or the subdivision or 3
18 platting procedures of a political subdivision prior to the
( 19 effective date of this Act or land on which new development f
j 20 scours or is proposed without platting, the political
21 subdivision may simian the impact fees at any time during
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i 22 the development approval/buildinq process and, except as
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( 23 provided in subsection (h) , may collect the fees at either
24 the time of connection to the political aubdivialon's water
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25 or sower system or at the time the political subdivision
26 issues either the building permit or the cartifirate of
27 occupancy.
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1 (2) This subsection applies only to impact foam
2 adopted subsequent to the effective data of this Act. for
1 new development which 1s platted in accordance with Arti
4 ale 971& and/or the subdivision or platting procedures of a
S politicalsubdivision prior to the adoption of an impact
I 6 fee, no impact fee shall be collected on any service unit
7 for which a valid building permit is issued within one (1)
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0 year subsequent to the data of adoption of the impact is*,
9 (1) This subsection applies to land which is platted
10 subsequent to adoption of an impact fee which is adopted
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11 after the effectivo dato of this Act, The political subdi-
12 vl.sicn th111 assess the impact fetis at the time of rotor-
I) daticn of a sutdivision plat or other plat pursuant to
14 Artlelo 9741, 1a:(as Aeviaad Civil 9tatutoo and/or the
15 subdivision or plattinq ordinance or procedures of any
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16 political subdivision in the official records of the County
17 Clark of the county in which the tract is located and,
18 except as provided in Subsection (h), may collect the fees I
19 at either the time of connection to the political nub-
20 division's water or sewer system or at the time the politi-
21 cal subdivision issues either the building permit or the
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23 14) t'or land on which new development occurs or is
24 proposed to occur without piatting, the political subdivl-
2S alon may assess the impact fee at any time during the
26 development/buildlnq peocess and may colleat the test at
27 either the time of connection t4 the political subdivision's
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1 water or sewer system or at the time the political subdivi-
2 lion issuer either the building permit or the certifioate of
oooupahey,
6 15) Assessment means a determination of the amount of
s the impact fee in effect an the date or occurrence provided
6 in this paragraph and is the maximum amount which can be
7 charged per service unit of such development, No specific
8 act by the political subdivision is required,
9 M After assessment of the impact fees attributable
10 to the new development or execution of an agreement for
li payta nt of !-.pact fens, no additional impact fees or
12 increases theme( shall be assessed against such tract for
13 am/ raison, unless the number of service units to be dovol-
14 oped on such tract increases. to the event of the Increase
j 15 in the number of survlce units, the impact fees to be f
16 imposed shall he limited to the amount attributable to the
17 additional susvice unite,
le (9) A political subdivision is authorized to enter
19 into an agreerent with the owner of u tract of land for
3 20 which the plat has been recorded providing for the time and
21 method of payment of the impact fees,
22 Ih1 except for roadway facilities, impact fees may be f
23 assessed, but shall not be collected, in areas where sar-
26 vices are not currently available unless)
25 111 a capital improvement facility or facility expan-
26 sion has bevn Identified in the capital improvements plan
27 and the political subdivision commits to commence
I
h ; `tea
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I i construction, pursuant to duly awarded cad executed
ffff a contracts covering substantially all of the work required to
3 provide service, within 1 year and, have the sorvice
6 available within a reasonable perioA of tine considering the
4 capital improvements or facility expansions to be
` 6 constructed, but in no avant longer than 5 years)
7 (2) the political subdivision agrees that the owner of ;
9 a new development may construct or finance the capital
g improvements or plant expansions and agrees that the costs
to incurred or funds advanced will be credited against the
11 impact foes otherwise due from the now development, cr
12 agrees to eoimbursa the owner for such coste from ;npa r.
10 fees paid from other now developments which will use each
14 capital improvements or plant expansiensi or
1s M an owner voluntarily requests the political sub-
16 division to raaerve capacity to serve future development and I
17 the political subdivision and owner enter into a valid
ti
t
19 written agreement.
19 Ill Any new development for which an impact fed has f
20 been paid 6611 be entitled to the permanent use and benefit
21 e( the services for which the fad was exacted and shall be j
22 entitled to receive immediate aervica from any existing
21 facilities with actual capacity to serve the new aarvice
24 units, subject to compliance with other valid ragulaticns.
25 11) Political subdivisions are authorized to expand
26 funds from any other lawful source to pay for all or a
27 portion of the capital improvements or fioxilty expansions
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f I to reduce the amount of 1XVaet fear,.
2 W political subdivisions end other governmental
3 entities are authorized to pay impact far imposed pursuant-
4 to this Act,
6 (1) Any oonatruction Of# Contributions to, or dedi-
6 cations of off-site roadway faoilities agreed to or required
i
7 by a political subdivision as 'a condition of development
8 approval shall be credited against roadway facilities impact
9 fees otherwise due from such development
10 SECTION 1. PROCEDURES FOR ADOPTION OF IMPACT r m (a)
II Except as otherwise provided in this Act, an impact fee as
I2 authorizhd by Subsection (b) of Section 2 of this Act shall
13 be levied by a political subdivision only upon corplyir;
14 with the provisions sot forth in this sao,ion
j_ 15 (b) A political subdivision intending to impose an
I 16 impact fee shall adopt an order, ordinance or resolution
11 establishing a public hearing data to consider land use
10 assumptions within the designated service area that will be
19 used to develop the capital Improvements plan,
20 tcl Not later then the day of adoption of such order,
21 the governing body of the political subdivision shall
22 appoint an advisory committee in accordance with section 7
22 of this Act,
24 IdI On or before the date of the first publication of
25 the notice, the political subdivision shall make available
26 to the publiv its land use aseumptiens, the time period of
27 the pcd1adtiona and a description of the general nature of
)
f ,
` I the capital improvesrent facilities.
II 7 (e) The political subdivision shall provide public
! notice of the hearings
A (1) At least 30 days before the hearing, the political
S subdivision shall send a notice of the hearing by certified
i mail to any person who has given written notice by certified
7 or registeetd mail to the city secretary or other designated
9 official of the political subdivision requesting notice of
9 such hearing within 2 years preoeding the date of adoption
10 of the resolution or order sotting the public hearing,
11 (2) Tho p:lltical subdivision shall publish notice cf
12 the hearing once h week for three conbacutive weeks, t`e
1) first notice to appear at toast )0, but not more than 6;,
14 days heforu the date set, for the hearing, in one or more
15 nelospapers with general circulation in each county in whicr%
16 the political subdivision lies. The notice of public hear-
11 ing shall itiot be in 'he part of the paper in which legal
lA notices and classified ads appear, shall not be smaller than
19 one+yuarter page of a standard-site or tabloid size news-
20 Par, , and the headline on the notice must be in I$-point or
21 larger type. i
22 (1) The notice shall contatA the fallowing:
23 (A) A headline to read At followst
21 "NOTICE OF PUBLIC HEARINO ON LAND USE ASSUMPTIONS
25 PELATINa TO POSSIBLE ADOPTION OF IMPACT FEES"
26 tni the time, date, and location of the hearing=
27 ICI a statement that the purpose of the hearing is to
.13.
I consider the land use asaumptieins that will be used to
2 develop A Capital improvements plan pursuant to which an
2 impact tee may be imposedf
I` 4 (p) an easily' understandable sap of the service area
I F
,w S to which the land use assumptions applyi and
qa 6 (E) a statement that any member of the public has the
7 right to appear at the hearing and present evidence for er
8 against the land use asswnptions.
9 if) After the publio hearing, the political sub-
i
10 divisi^n shall dotermine whether to adopt or reject an
11 ordinance, order or resolution approving the land use
12 ossur,pt:ons. I
10 fgl ;he political subdivision shall have 30 days frcm
14 the date of the public hearing within which to approve or
j 16 disapprove such land use assumptions, f
Id (h) An ordinance, order or resolution approving land 1
t }
17 use assumptions shall not be adopted as an emergency f
„
18 measure,
1 I
it ill if the governing body adopts an ordinance, order
20 or resolution' approving the land use assumptionsp the
# , + 21 political subdivision shall provide for a capital improve-
22 ments plan to be developed by qualified professionals using
23 generally accepted engineering and planning practises in j
24 accordance with Subsection (d) of 9sction 2. 1
1 25 111 Upon completion of the capital improvements plan,
26 the governing body shall adopt an order or resolution
27 setting a public hearing to discuss the adoption of the plan
(
.14.
1
i
a
I and ix-position of the repast fee,
2 M A public hearing must be held by the governing
3 body of the political subdivision to discuss the proposed'
j 4 ordinance, order at resolution adopting a capital improve-
5 manta plan and imposing an impact fae, On or before the
6 date of the first publication of the notice, the capital
7 improvements plan shall be available to the public.
A (1) The political subdivision shall provide public
9 notice of the hearings
10 f1Y At least 10 days before the hearing, the political
11 subdivision shall send a notico of the hearing by certified f
12 mail to er.y pgrECn who has given written notice by coetifind
11 or reoistercd rail to the city secretary or other designated
14 offieiai 0.1 the pelt^.ical subdivision roquesting notice of
15 such hearing within 2 years preceding the date of adoption
1
16 of the resolution or order betting the public hearings
17 121 The ;,optical subdivision shall publish notice of
10 the hearing once a week for three consecutive weekso the
19 first notice to appear at least 00, but not more than 60,
20 days Utfore the date eat for the hearing, in one or more
21 newspaperb with genaral_circulation in each county 7n which
22 the political subdivision lies, The notice of public hear- €
73 ing shall not be in the part of the paper in which 141al
24 notices and classified ads appear, shall not be smaller than
25 one-quarter page of a standard-sits or tabloid site news- i
26 paper, and the headline on the notice must be in 14-point or
27 larger type
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1 (3) The notice shall contain the iol3owin4,
2 (A) A headline to reed as follows$
( 3 "NOTICS OF PUSUC NCAf1IN0 ON
f a ADOPTION Of il1PACT rtes
I ! 191 the time, date, and location of the hearing)
l [ 6 IC) a statement that the purpose Of the hearing to to
7 consider the adoption of in impact feel
6 (D) an easily understandable map of the service area"
9 on which the proposed tee will be levied)
10 lei the amount of the proposed impact foe
per service
11 unitsr and
12 frh a statement that any rem,ber of the public has
11 right to appear at the hearing and present evidonto to ;c i
IJ against the plan and proposed too,
15 (mI The advisory committee shall file its written
16 CONVnents on the prope9ad capital improvements plan and
F
17 impact tees not less than S business days
prior to the
] 16 public hearing,
t 19 fn) The
political subdivision shall approve or dis-
20 approve the adoption of the capital improvements plan and
21 Imposition of an impact fee within 30 days after the public I
22 hearing,
' 23 (o) An orainande, order or resolution approving the i
21 capital o^provements plan and imposition of an impact fee
26 shall not be adopted as an emergency measure,
26 Ipl vo moraturium shall be placed on new davnlopment
27 pending the completion of all or any part of the process
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I necessary to develop, adopt or update the in"at tee,
2 6> CT201! 4. qsE OT 1'ROCEEag, (a) The order, ordinance
3 or resolution levying an impact fee shall provide that all
4 funds collected through the adoption of an iassaat fee shall
i
9 hs deposited in int~rgr.t-4.Rarinq, accounts oloarly. identi-
6 fyinq the category of capital Improvements or facility
1 7 expansions within the service area for which the tee was
I adopted, int sct sarned on impact fees shall be considered
9 funds of the account on which it is earned and shall be I
10 subject to all restrictions placed on use of impact fees
it under the provisions of this Act, Expondituroo of impact
11 too funds shall be made only for tho purposes for which he
1) ir..pact fee wan imposed as shown by the capital improvements
~ i
14 plan and as authorized by this Act, The records of the
1
15 accounts into which impact fees are deposited shall be open
16 fur public inspection and copying during ordinary business
17 hours,
is Ib) The governing body shall- be responsible for
19 supervising implementation of the capital improvements plan
,
20 in a timely manner. E
21 SECTION S, WUMp9, (a) Upon the request of an owner
22 of the property on which an impact foe has been paid, the
23 political subdivision shall refund the Impact tees if
exist- 14 ing far,ilitiss are available and service is denied, or the
f r
25 political subdivision has failed to eommon::e construction
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26 Within l yoar, or service is not availabla within a reason-
27 Able period of time considering the capital improvement or
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1 facility expansion to be constructed, but in no avant later
2 than 5 years from the date of payment pursuant to the
1 provisions of subsection (h) (1) of Section 2 hereof,
1 (b) upon aomplation of the capital improvements or
5 facility expansions identified in the capital Improvements
i
6 plan, the political subdivision shall recalculate the impact
7 fse using the actual coots of the capital improvements or
j A facility' expansion, It the impact fse calculated based on
9 actual cost is less than the impact fee paid, the political
10 subdivision shall refund the difference if the difference
11 exceeds the impact fee paid by more than 10%,
12 10 The political subdivision shall refund any impact
1) fee, or portion thoroof, which is not expended as authorized
f
id by thia Act within 10 years from date of payment,
i 15 (d) Any refund shall boat interest calculated from the 1
16 data of collection to the date of refund at the statutory i
It rate as sat forth in Article L.03# Title 79, Revised Stet-
1t utes (Article 5069-1,0), Vernon's Texas Civil Statutes)p or
I
19 its successor statute,
20 W All refunds shall be made to the record owner of
}k 21 the property at the time the refund is paid, provided,
22 however, if the impact tees were paid by another political 1
4 27 subdivision or governmental entity, payment shall be made to
24 such political subdivision or governmental entity,
25 1fi The owner of the property on which an impact fee i
26 his boon paid or another political subdivision or govern-
27 mental entity which paid the impact fie shall have standing
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I to sue tot a refund under the provisions of this section,
2 SSMON 0 ptaM q sr. (a) A political subdivision
3 'Awk n •n imy of fee_ ~hRll yPa!!!_xhl lilid lt!Le_ar.NUieptiana .
1 and capital improvements plan at least eve y yeare) which
9 three-year period shall commenoe from the date of the adop-
6 tion of the capital improvements' plan,
7 (b) The political subdivision shall review and •val-
uate its current land use assumptions and shall cause an
9 update of the capital improvements plan to be prepared in
10 accordance with section 21
11 to) The governing body of the political subdivision
12 shall, within 60 days of receiving the update of the San..
13 use assumptions and the capital improvements plan, adopt an
t
14 order setting a public hearing to disduss and to review the
18 update, and shall determine whether to emend the plan.
16 (d) A public hearing must be field by the governing
17 body of the political subdivision-to discuss the proposed
1S ordinance, order or resolution amending land use aseump«:
19 tions, the capital improvements plan or the impact its, on
20 or before the data of the first publication of the notice,
21 the land use assumptions and the capital improvements plan j
22 shall be available to the public,
l
23 (a) The political subdivision shall provide public
24 notice of the hearings
!6 Ill At least 10 days before the hearing, the political
26 subdivision shall send a notice of the hearing by certified
27 mail to any person who has given written notice by certified
d
N
M 1
I
I or registered mail to the city secretary or other designated
2 official of the political subdivision rsquseting notice of
1 such hearing within 2 years preceding the date of adoption
6 of the resolution or order setting the public hearing,
5 (2) the political subdivision Aall publish notice of
6 the hearing once a week for three consecutive waeks, the
7 first notice to appear at least l0, but not more than 60, €
days before the data set for the heating, in one or more
9 newspapers with general circulation in each county in which
10 the political subdivision ties, The notice of public hear-
11 ing shall not bo in tho part of the paper in which legal
12 noticos and classified ads appear, shall not be smallor than ,
11 ono-quartor page of a standard-silo or tabloid ilte news-
i i
11 paper, and the headline on the notico must bo in 18-point or
15 larger type, ! 1
16 (1) The notice shall contain the followings
11 (AS A headline to read as follows s
is 'ONOTtCE Or PUBLIC HEARING ON
i
19 MENOMENT Or IMPACT ri"EV
20 lB1 the time, date, and location of the hearings
s 21 ICI a statement that the purpose of the hearing is to
j 22 annsider the amendme±t of a land assumption plan, capital
2) imp.aovoments plan and imposition of an impact fees )
r 26 101 in easily understandable description and map of +
f
26 the asr::ee area on which the update is being petparsdi and
26 IEI s statement that any member of the public hair the
` j 27 right to appear at the hearing and prasant evidence for or
j
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V
II
7
I
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1
I against the updates
2 1f1 The advisory committee shall file its written
3 comments on the proposed Amiendaantei ho the land use asruasp-
4 tions, capital improvements plan and impact fee not less
S than 5 business, days prior to the public hvarinq.
6 (q) The political subdivision shall approve or dis-
I 7 approve the amendment of the land use assumptions, the
9 capital improvements plan and modification of an impact fee
9 within 10 days after the public hearing.
10 {h) An ordinance, order or resolution approving the
ll amendment to the land use assumptions, the capital improve-
12 r..onts plan and iml+oaition of an impact fee shall not to
11 adopted as an emergency measure,
14 StcTION 7, ADVISORY COM.MITTLC, (d) A capita:
15 improvements advisory CbMitteei comprised of not less than
16 five members, shall be appointed by A majority vote of the
17 ~go,Varning body of the political subdivision, Not less than
ism 401 of the membership of th~~~dvieory committee shall be
19 representatives of the real estits, development or building
20 industries, who are not employeesor officials of a politl-
21 cal subdivision or governmental entity, It the impact feu
22 is to be applied within the extraterritorial jurisdiction of
i
23 the political subdivision, said membership shall include a `
24 representative from such area
25 1b) The advisory oommittee shall lerve in an advisory
26 capacity and is established to perform the following
27 functionrs
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A
1
1 ~
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I ~
VI
1
1 (11 to atdvtal..,>An4.a!r>~4.tfi~.p9lltiaaLtilfdistiiion ir,
2 adopting: land ue• assumtior~l
1 i2) to review the capital ispKovaments plane and file
4 weltt~n, ooines~~s~
9 111 to monitor and evaluate Ispleslentation of the
6 gapital i(Aprovemanta._planl _
1 (4) ,to file semiannual reports with respect to the f
6 progress of the capital improvements plan and to report to
9 the political subdivision any perceived Inequities in
j
10 implementing the plan or imposing the impact feel and
l1 15) to advise the political subdivision of the need to
( ti
12 update or rovise the land use assumptions, cr.pital Improve-
13 monts plan and Impact toe,
! 14 (c) The political subdivision shall make available to
t 15 the advisory committee any professional reports with respect
16 to developing and implementing the capital improvements
4
17 plan)
19 (d) -the governing body of the political subdivision s
19 shall adopt procedural rules for the committee to follow in s
i
20 carrying outs its duties,
j 21 9ECTION A. GENERAL PROVIalON9. (a) If the governing
22 body of the political subdivision does not perform a duty i
21 imposed under this Act within the f
prescribed time period, a
24 person who has paid an impact fee or an owner of land upon
25 which an Impact fee has been paid shall have the right to
26 present a written request to the governing body of the
27 political subdivision stating the nature of the unperformed
.22-
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v
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1 duty, and requesting that it be performed within 40 days of
t the request, If the governing body of the political sub.
7 division rinds that the duty is required under this Act and
4 is late in being pertoraNd, it shall cause the duty to
1 commence within 40 days of the request and continue until
j 4 completion,
7 (b) A record must be made of any public hearing
6 provided for in this Mt. such record shall be malntainsd
9 and be made available for public Inspection by the political
to subdivision for at least 10 years after the hearing,
11 Icl Any state or local restrictions that apply to the
12 imposition of an Impact fee in a political subdivision where
11 an impact No is propasod will be cumulative with the
14 restrictions in this Aot, i
19 Idl An impact fee which' is In place on the effective
16 date of this Act must, within years of said effective t
17 date, be replaced by in impact fee made pursuant to this
is Aoti provided, however, any political subdivision whose
19 Impact No has not been replaced pursuant to this Aut within
F
20 1 year of the effective data of this Act shall be liable to
21 any party who is assessed or pays an impact fee which
22 exceeds the maximum permitted under subsection {d) of
23 section 2 by more than 109 for an amount equal to l times
24 the difference between the maximum impact fee allowed and
29 the actual impact fee imposed plus reasonable attorney fees
i
26 and court costs,
i
27 (a) This Act shall not be construed to prohibit, i
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y
,
E
i
I affect or regulate any tax, feel charge or assesasent which
2 is speoifioally authori;ed by law,
3 SECTION 9, APPP.ALA, A Person who has exhausted all
I~
4 administrative remedies within the political subdivision and
5 who is aggrieved by a final decision is entitled to trial de
k E+~ 6 novo under this Act. A suit to contest an impact too must
i I be filed within 90 days from the dot* of adoption of the
,
S ordinance, order or res~lutlen establishing the impact fee,
9 Exempt for roadway facilities, a person who has paid an j
10 impact fee or an owner of t
property on which an impact fee
1 , 11 has been paid shall be entitled to specific performance of
, 12 the sorvicos by the political subdivision for which the fee
i
13 was paid. Nothing in this section shall require construe-
14 tion of m specific facility to provide /Uoh services, Any k
15 suit must be filed in the county in which the major portion
j 16 of the land arLa the political subdivision is located. A
17 successful litigar±t shall be entitled to recover reasonable 111{,
L It attorney teem and court costs. An impact fee shall not be
19 held invalid because the public notice requirements were not
{ 20 complied with if compliance was substantial and in good
21 faith,
22 SECTION 10, STORM MATER, DRAINAGE AND FLOOD CONTROL,
23 (a) Any count with a
county population of at least 2,2 :million, ,
24 according to thf,cost recent federal census, or which
25 border* a county wir,h a population of at least 2,2 million,
r
26 and any district or authority created under Article XVI, 1
F
27 Section 59 of the reums Constitution, within any such county
f
.24-
t- ' r
I that ie authorised to provide storm water, drainage and
7 flood control facilities, is authorised to impose impact
3 fees to provide storm water, drainage and flood control
4 improvements necessary to 4e001010date new development,
S (b) The imposition of impact teas authorised by this
6 subsection (al is exempt from the requirements of section s,
7 Section 6 and subsection (d) of Section S of this Act,
S unless the political subdivision proposes to increase the
9 Impact fee,
10 (c) Any political subdivision described in subsac-
;
I1 tion (a) is authorized to pledge or otherwise contractually
12 obll atp.
g all or part of the Impact fees to the pa}^nent of
13 principal and intareat on bonds, notes or other obligations
14 issued or incurred by or on behalf of such political Sub 1
15 division and to the payment of any other contractual f
16 obligations,
t
17 (d) An Impact foe adopted by a political subdivision !
14 pursuant to subsection (a) shall hot be reduced if 1) the
19 political`subdivisioo has pledged or otherwise contractually )
20 obligated all or part of the impact fees to the payment of
21 principal and interest on bonds, notes or other obligations
22 issued by or on behalf of such political subdivision and 2)
2J the political subdivision agroea in such pledge or contract
24 not to reduce such impact fees during the term of such
2$ bonds, notes or other contractual obligations,
26 SECTION It. EXEMPT TRANSACTIONS, This Act doer net
27 apply to impact fees, chargas, fees, assesaments, or '
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I contributions paid by or charged to a district created Under
2 Article XVi, Section S9, of the ryas Constitution to
3 another distriot created under Ar iol* xVi, Section $9, of
1 the Texas constitution, if both districts are required by j
s: '
3 law to obtain approval of their bonda by the Texas Water
6 Cormnialion,
7 SCCTtON 12, ENCAOENCY CLAUSE, The importance of this
S legislation and the crowded condition of the calendars in
4 both houses create an emergency and an imperative public
10 necessiLy that the constitutional rule requiring bills to be
11 read on three savaral days in each house be suspended, ind
12 this rule is hereby suspended. I
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APPENDIX D - CITIZENS' COMMITTEE WORKSHOPS
Citizens' Committee members were provided with a broad selection of data at
the first workshop meeting. These includedi
1. "Statement of Principles for Capital Recovery Pees" adopted by the
l Dallas Rater System Management Advisory Committee.
2. Public Utilities Board Agenda Item (10/1/84) "Consider Policies
Regarding Extensions and Oversizing of Water and Sewer Lines."
3. Public` Utilities Board Agenda Item (11/28/84) "Consider Policiesa
Regarding Extensions and Oversizing of Water and Sewer Lines."
4. Transmittal memo to Board from R.E. Nelson dated 12/13/84 and
attaching Resolution to City Council, together with Outline of
f Proposed OrdinAnce dated 12/12/84.
5. City Council Agenda Item dated 1/8/85 "Consider Public Utilities
Board Resolution Regarding Capital Recovery Fees."
6, Various newspaper articles.
7. "Capital Recovery Fees Neu ievenue for Texas Cities," Public
Works Resource Center, Texas Engineering Extension Service, Texas
A&M University, 1983,
8. "Capital Recovery Fee Systems in Texas Cities," Public Works
Resource Center, Texas A&N University, 1986.
At the second and third workshop meetings additional information was
provided to the Citizens' Committee. These data focused primarily on the
charge per 1,400 gallons to water customers and the monthly charge tb 4
wastewater customers, Stacked bar charts were used to indicate the portion I
of the overall charge that related to operations and maintenance, to
capital costs associated with existing customers, and to capital cost
expenditures benefiting future customers. These charts are reproduced
i
herein as Figures 2 and 3.
1
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D-1 i
111
A total of tAnty-five persons were selected as members of the Committee. -
Attendance at', he workshops (which were held on February 9, February 23,
and March 21, 1967) was extremely high as was the level of interest and
involvement'
First Workshop
During the first workshop Mr. Robert Nelson, Utilities Department Director,
presented each participant with a three-ring binder containing 93 pages of
capital recovery fee information compiled by the City of Denton during the
E prior two-year period.
i
Issues covered during the first workshop included a general description of i
l
the water and wastewater system facilities, the general level' of capital
j recovery fees calculated by the Utilities Department during 1984 using a
cost of service factors approach, the current and planned developments
relating to the water system source of supply,and CDM's participation in
the study.
Four issues were eaised by the committee for discussion and review during
i
the next (second) vorkshopt
1. The impact of a capital recovery fee on economic development,
2, The cost impact of a capital recovery fee on the customer's monthly }
bill,
3. The need to provide a definition for the term "Capital Recovery,
i Fee".
4. Exploration of legal considerations,
i
Second Workshop
Issues discussed at this meeting of the Citizens' Committee includedi
j
y Elements to be considered in a capital recovery fee definition,
i !
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1
D-2
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{
The bill 'sponsored by the Rome Builders Association that As nov before
the Texas Legislature.
The differing impact of capital recovery fees on the various customer
classifications.
Litigation potential.
Possible effects on land values.
Possible effects on the'cost of homes,
Ovorsizing of water lines and fire flows.
Inflationary impacts.
Replacing or upgrading of facilities,
Future quantity rates with and without a capital recovery fee program,
Qenton's current financial condition
Impacts on students and senior citizens with and without a capital
recovery fee+'program
co-generation imparts.
The application of a capital recovery fee program to the resale or
remodeling of houses.
Administration of capital recovery fee programs. I
Utility financing considerations.
Equity, t
Third Vorks, hop
Items discussed during this meeting ineludedi'
Preliminary results of the survey of other Texas cities being
conducted by Camp Dresser & McKee, {
Utility cost estimates for 1088 and 1991 for operations and
maintenance, capital expenditures benefiting existing customers,
..capital expenditures benefiting future customers;
Magnitude of revenue shortfalls, ~s~►i
Oy3 r
1
Thaoretieat caoitel'recovery fee levels based ont (1) incremental
coats and (2) cyclic costs.
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i BIBLIOGRAPHY
0 eratin' bud et ,Electric-Vater-Vastevatar 1986-87. City of Denton,
Departaent o Utilities.
Five-Year Capital Improvements P1anp 1987-1991. City of Denton,
Department b Utilities.
j Comprehensive Annual Financial Reports, 1981-1985. City of Denton.
Department of Utilities Hester plan - 1986. City of Denton,
Department o Utilities,
` Cit ''of Denton Land Use Analysis - 2010. City of Denton, Planning and
E Development Department. March 1986.
Subdivision and Land Development Regulations. City of Denton. 1985.
Report on Long-Range Water Supply. Freese and Nichols, Inc. 1982.'
Water Treatment Plant Expansion Study. Freese and Nichols, Inc.
84.
Wastewater Collection -System_Master Plan, Freese and Nichols, Inc.
July 985. -
Capital Recovery Feesi New Revenue For Texas Cities. James M.
Gaston. April 98
Water Distribution System Plow Analysis for Alternate Water Supply
i Sources. Hogan an Rasor, Inc, July 1988
Capital Recovory Fees - Making Developers Pay Their Way. Bryce
Kennedy, October 1984. j
i
Municipal Utilities Rate ~Studies V_olumes 1 22and_.3. Management
Applications Consu t ngl i , Inc. Se- ptem~er 1986.
Drafting Impact Fee Ordinances (parts i and 2). Terry D. Morgan, et
al. Zoning and Planning Lau Report. July-September, 1986. f
Affordable Housing and Equity Considerations of Development Impact j"
Fees. Arthur C. Nelson (no date).
Capital Recovery Fee Systems,,in Texas Cities. David L. Pugh. 1986.
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