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HomeMy WebLinkAbout1987 c ..p 4 i i j1 1 CITY of DEAMON, TEXAS MUNICIPAL BUILDING / DENTON, TEXAS 78201 / TELEPHONE (811) 688.8307 office of the city Manager ~4FMORANDUM T~; Bob Nelsons Bxecutive Director of Utilities Rick Svehla, Deputy City Manager Jerry Clark, City Engineer Joe Morris Assistant City Attorney Roger Nelson, Administrative Aide a David Ellison, Acting Executive Director of Planning j i PROM; Lloyd V. Harrell, City Manager DATE: October 12, 1987 " SUBJECT: Discussion ion of Impact Actions Regarding the Possible i You are reminded of the session which has been scheduled for Thursday, November 5, 1987, at 9x30 A.M. to discuss the G possible imposition o£ impact fees within our community and the steps which need to be undertaken to make a determination about this subject. The meeting will be bald in the City Manager's i Confereuce Room, In preparation for that meeting, I have attached a copy of a memorandum from Joe Morris for your review, as well as a copy of the bill itself and a paper delivered at the recently concluded Texas Municipal League session, I would ask each of you to read the attached documents thoroughly prior to the meeting so that our session Can bb productive, j Hopefully, at our meeting we can discuss actions which are necessary to address this impact fee question, Your help in this regard is very much appreciated. i oy are 1 City Manager t i Attachments s dm/3663M f t t E 4 go" 1 ~1NFNW Mi11H.~ ~aCg1AY9e 4 OFFICE OF THE C LTY A,TT.7RN KY MEMORANDUM TO: Lloyd V. Harrell, City Manager { FROMi Joe D, Morris, Assistant City Attorney SUBJECT: Summary of Senate Bill No. 336 Relating to impact Fees ( DATE: June 18, 1.987 ( The following is a summary of recent State legislation concerning impact fees, a copy of which is attached. The Act I is a fairly comprehensive piece of legislation containing detailed requirements that must be followed if a political subdivision wishes to enact impact fees. This summary is meant only to give a general overview of the major components of the legislation and should not be relied upon for answers to specific questions concerning the implementation of impact fees. Ii A. Application and Definitions. Senate Bill No. 336 was made effective upon its. passage. i The Act applies to all cities, utility districts, and certain counties for specified purposes. (Sec, 1 171)• Therefore, any city wishing to adopt impact fees must now comply with the requirements of the Act. i tinder the Act, impact fees tnolude any "charge or assessment imposed by a political aaubdivision against new development in order to generate revenue for funding or recouping the costs of capital improvements or facility expansions necessitated by and attributable to such new development,." (Sec, 1 (4) (A)). However, the Act specifically excludes from that definition park fees paid in lieu of dedicated land, pro rata foes for utility lines, and traditional subdivision cobs truction requirements. (Sec. 1 (4) (B)). The impact fees may be applied within the corporate limits and the extraterritorial jurisdiction of the city ("service area"), except for impact fees charged for major roads, which may only oa imposed on property within the corporate limits, I (Sec. 2 (a)). r s. Lloyd V. Harrell June 18, 1987 Page Two Impact fees me only be imposed for the purpose of paying the post of constrF,cting capital improvements or for expanding the capacity of an existing capital improvement. (Sec, 2 (b))• Among other restrictions, the Act specifically operation,thorU3emaof Impact intenance fofs fcapit&I facilities) epafor, upgrading, updating, expanding, or replacing existing capital improvements to provide better service to existing develop- men a or for paying for any capital improvements not iden- tified on the CIP, (Sec, 2 (c)) f The Act also specifies that a city with existing impact fees must, within three yearn of the effective date of the Act, be replaced by impact fees adopted in accordance with the Act. j (Sec. 8 (d)). This provision may be significant, in that the city presently has several development fees that qualify as impact Pees, as definAd by the Act. For example, the Denton Development Code presently has several provisions concerning the collection of cash in lieu of the construction of improvements. In the case of drainage improvements, two provisions refer to the acceptance of cash 1 payments as an alternative to requiring dow mtream drainage improvements to handle additional storm water runoff from a development. fArt. 4,15 (C) (5) and 4.63 (H) (3)). The I latter cited provision also refers to the collection of rata payments for developers who provide "ultimate drainage for a whole street) the from adjacent properties whenrdeveloped, Sinceetheselefees would meet the definition of impact fees under the Act, they would need to be adopted in accordance with the Act within three years of the effective date of the Act. 9. Procedures for Adoption of Impact Fee. Impact fees may only be imposed in accordance with the specified procedures and requirements of the Act, (Sec, 3 adds. Those general procedures and requirements are 1. capital Improvements Advisory Committee, The Act requires the City council to appoint an advisory committee at the time the first required public hearing under the Act is scheduled. (Sec. 3 (c)), The purpose of the form implementationadvise thedimpactassist fein the e and,pifCeimplamentedrequired too i , ea o A ,T`71 ■ R YNO' 1l?ily, l Lloyd V. Harrell ,Lune 18, 1987 Page Three monitor and evaluate the required capital improvements plan approved in conjunction with the impact fees, (Sec. 7 (b)). The committee is to be composed of at least five members. Forty percent of Cne membership is to be "representative of the real estate, development, or building industries". The Planning and ?,oning Commission may serve as the committee if its members most the required representative interests. if the Commission does not have the required representation, it still may serve as the advisory committee if the council ~y appoints at least one of the required representatives to the commission as an ad hoc voting member. (Sec, 7 (a)). C 2. Adoption of Land Use Assumptions. I The first formal planning step required by the Act in implementing impact fees is to formulate the "land use assumptions" than. will be used in developing the capital improvements plan for which the impact fees are to be _ adopted, (Sec. 3 (b)). The "land use assumptions" are the projections of the changes in land use, "densities", "intensities", and population in the service area for a period of at least ten years. (Sao. 1 (5)1. After notice is given and a public hearing held, the Council must formally approve or reject the land use assumptions. The Act contains provisions on how notice is to be given, E what the notice is to contain, and what information must be made available to the public prior to the hearing. (Sec. 3 (d) and (a)). 3. Adoption of Capital Improvements plan and impact Fees. If the Council approves the land use assumptions, it must provide for a capital improvements plan (CIP)• (Sec. 3 (M. Along with the land use assumptions, the CEP is a central islement of the impact fee process, since the land use assumptions and CIP are meant to provide the data on which the amount of the impact fees are to be determined. The Act, therefore, contemplates that the impact fees will be adopted concurrently with the required CIP, As in the case of the adoption of the land use assumptions, the Act sets forth detailed provisions requiring that public notice be given and a public hearing be held in regard to adoption of the ordinance approving the CIP and imposing the ! r .y ~Wl FAINI 'OYtS°il I Lloyd V. Harrell June 18, 1987 Page Three monitor and evaluate the required capital improveme,.cs plan approved in conjunction with the impact fees, (Sea. 7 (b)), The committee is to be composed of at least five members. Forty percent of the membership is to be "representative of the real estate, development, or building industries", The Planning and Zoning Commission may serve as the committee if its members meet the required representative interests. If the Commission does not have the required representation, it still may serve as the advisory committee if the Council appoints at least one of the required representatives to the j Commission as an ad hoc voting member. (Sec. 7 (a)), 2, Adoption of Land Use Assumptions. The first formal planning step implementing impact fees isto formulate btheth"landt use assumptions" that will be used in developing the capital improvements plan for which the impact fees are to be adopted. (Sec, 3 (b)). The "land use assumptions" are the projections of the changes in land use,~ I f "intensities", and population in the service area sifo s a period of at least ten years, (Sec, 1 (g)), After notice is given and a must formall a public hearing hold, the Council The Act mally approve or reject the land use assumptions. j ontains provisions on how notice is to be given, what the notice is to contain, and what information must be made available to the public prior to the hearing. (Sec, 3 (d) and (e)). 3• Adoption of Capital Improvements Plan and Impact Fees. If the Council approves the land use assumptions, it must Alongdwithrthecalandluseprassumptions, thesCip isea 3 (ra element of the impact fee central process, and CIP are meant toro since the land use the amount of the impact fees are tobeddetermined, oThewAct, therefore, contemplates that the impact fees will be adopted concurrently with the required CIP, As in the case of the adoption of the land use assumptions, the Act sets forth detailed provisions requiring that public notice be given and a public hearing be held in regard to adoption of the ordinance approving the c1P and imposing the F F Lloyd V. Harrell June 18, 1987 Page Four impact fees, including notice of the "amount of the proposed impact fee per service unit," [sec, 3 (j) (k) and (1)). In summary, the CIP is required to contain: (a) A description of the existing capital improvements in the service area and the costs to improve or replace the improvements to meet existing needs: (b) An analysis of the capacity, level of current usage, I~ and commitments of usage of capacity of the existing improvementsi (c) A description of improvements and their costs needed by new development in the service area based on the approved land use assumptionst EE (d) A table setting the level or quantity of use, con- sumption, generation, or discharge of a "service unit" for each category of capital improvements, and j a conversion table "establishing the ratio of a ser- vice unit to various types of land uses": (e) The number of projected service units needed by new i development within the service area based on the approved land use assumptions; and, (f) The projected demand for capital improvements re- quired by new service units for a projected period of time not to exceed ten years, The term "service unit" as used in the above provisions, and on which the impact fee is to be based, is defined by the Act as being the measurement on which consumption, use, genera tion, or 'discharge is based for an "individual unit of dove lopment", i.e. single-family home, mobile home, apartment, etc, (sec, 1 (10)). ? r,: The approved impact fee must be calculated in accordance with the approved land use assumptions and CIP. Generally, the maximum amount of the impact fee that may be adopted per service unit is calculated in one of two ways, First, if the total number of projected service units in the servico area projected over a reasonable period of time, not to exceed ten years, equals. the number of projected service ' s K i Lloyd V. Harrell June 18, 1987 Page Five units shown by the approved land use assumptions at full development, tae amount of the impact fee is determined by dividing the cost of the needed capital improvements, as described in (o), above, by the total number of projected service units, as described in (e), above. (Sec. 2 (d) (2)]. However, if the total number of service units in the service area projected over the designated period of time, not to exceed ten years, is less than the number of projected service units shown in tWe approved land use assumptions at full development, the maximum amount of the impact fee per service unit is determined by dividing the costs of the portion of the capital improvements needed by projected new service units for the projected period of time, as described in (f), above, divided by the projected number of service units for the projected period of time, also as described in (f), above. (Sao, 2 (d) (2)1. j These methods of calculation, simply put, mean that a, city may only charge an impact fee which is sufficient to pay for S the capital improvements that will be needed for development projected over a "reasonable period of time", which shall not exceed ten years. If full development is projected for the service area within the the "reasonable period of time", then the total impact fee which is necessary to pay for the cost I of all needed improvements at full development may be charged. If less than full development is projected for the designated period of time, the impact fee must be limited to paying for the capital improvements that will be necessary to serve the demand that will be needed over that period of time. C. Updating of Land Use Assumptions, CIP, and Impact Fees. The Act also requires that the land use asaiin.iptions and CIP be "updated" at least every three years, [Sec. 6 (a)]. The setme procedures required for original adoption of the land use assumptions and CIP, also apply to any updates to the assumptions and plan, (Sec. 6 (b), (c), (d), (e), (fl;, (g), and (h)1. However, once an impact fee has been assessed against a development, the assessed fee may not be increased in accordance with an updated impact fee, (Sec, 2 (f)). D. Refunds of Impact Pass. The Act requires a city to refund impact fees charged and collected if the capital improvements are not provided within 0 ' MY 44',GMI Lloyd V. Harrell Jc ne 18, 1987 Page six a specified period of times if the actual costs of the capital improvements are less than the estimated costs on which the impact fee was determined: or, if the fees are not used for the specified improvements within ten years, [sec, 5 (a), (b), and (c)). E. Appeals. Any person wishing to contest the legality of an impact fee must file suit within 90 days of the ordinance adopting the fee. Any person who has paid an impact fee is entitled to specific performance of the service for which the fee was paid. Any successful litigant will be entitled to recover reasonable attorney's fees. (Sec. 9). In closing, we would note that the main thrust of the Act is to require cities that wish to make use of impact fees as part of their capital improvement plans to do the necessary planning and studies to insure that there is a demonstrable relationship between this °ee charged each development and the cost of the public facilities that will be needed to serve that development, The Act is also intended to insure that the moneys collected are actually used within a reasonable period of time to construct the facilities for which they sere collected, i i MORRI JDMt)s APPROVEDt DEBRA ADAM 5l ITCH .:ni Rick Svehla, Deputy City Manager Robert E, Nelson, Executive Director for utilities jaff Meyer, Exeeutivc Director PlAnning/Development Steve Brinkman, Director of Parks & Recreation Jeriy Clark, City Engineer i ,w 1 ' p Impact 3'ees in Texas After 6H 336s ' A Legal and a Practical Perspective t by Terry D. Morgan, Esq.* and lorry N. Hiebert, AiCP EIrI I i *Terry Morgan is a former Assistant City Attorney for the City of Austin and presently Maintains a private law practice in Austin, i Texas, emphasizing municipal law. He is of counsel to the Kansas city, No. firm of Freilioh, Laitner, Carlisle and shortlidge. 3 **aorry Hisbert is the Direotor of Development Services for the City of Richardson. r ~M.. _.....n..yXy•Yru~•(!1VYYM.K... iw..'4rN\MXW♦.e~Fr u.4wa:.-^+wewti.ri IN .aea•~w!M..n.w....s.. . v...vyw•µigt4N.PWW... 1 . n nt j yaeK/swr r ° ■s 1■i~ r w Part I SB 336, enacted by the 70th Legislature and effective June 10, i enables general law and charter cities to adopt "impact fsos," a which are defined as charges or assessments against new development "in order to generate revenue for funding or recouping the costs of capital improvements pr facility expansions necessitated by and attributable to such new s development." The intent of the statute is to standardize the methods and the procedures by which municipalities adopt fees to fund new off-site capital facilities designed to serve new i growth. j The new Texas law is the first comprehensive enabling statute in , i the United States expressly authorizing the use of impact fees. As such, it has important ramifications for municipal practices j of exacting gees and other contributions, from developers as a i condition of development approval. This artiole examines the I j provisions of thA statute and identifies some key issues which must bs taken into account by municipalities wishing that are now using or intend to use impact fees to finance development infrastructure. Us& of devo oo ant exactions in-Texas Cities in Texas have long had the authority to require subdividers and lend developers to provide adequate public i j ~ . -10 a2. facilities, streets and utilities, within the proposed development site,i KoNt Texas cities have incorporated minimum standards for installation of these "on-site" facilities within subdivision regulations, However, "on-site" streets and utilities coaprise only a part of the total municipal infrastructure costs necessary to serve new development, Consequently, many citiesihave devised methods of requiring n&w development to pay for the additional costs of "'off-site", capital improvenents which are-attributable to the development project, Ej The charges against new development to pay for off-site capital improvements are known by a variety of names, such as E "tap charges," "capital recovery fees," and "pro rata,oharges." Most such fees are imposed to finance sewer and water collection and distribution lines, water storage facilitiss or treatment facilities, These charges may be levied in addition to subdivision regulations requiring the-developer to construct or. E pay for off-site transmission facilities needed to bring service f to the development site. Some municipalities also impose lees "in lieu" of the dedication of land for certain types of facilities, usually parks, which are I designed to serve an area greater than the development site and E i which will be constructed off-site, This practice is of relatively. recent origin in Texas, and is usually tied to the subdivision process, i '-.......r n..♦u4fa MGM ur n..m... • _ ..u.er..:.. eNl 'E r , i Me►aa iaaasiiM 3 w+ae 1 3 4 A h Judigial history of development lase in Texas py4 7 Recent surveys indicate that the use of impact flea by municipalities is rapidly increasinn in many areas of the country. 2 impact fees have evolved as a refinement of other types of charges for new capital facilities, primarily tees in lieu of subdivision dedication requirements ("in lieuO fees). f } impact fees in general are more flexible because th,,~ are not limited to the subdivision process and they can be used to finance area or community-wide facilities. In Texas there are no cases directly involving impact fees. The Texas Supreme Court, however, upheld the City of College ~itirnIa parkland dedication and in lieu fee ordinance are a proper exercise of home rule authority in City o College Std {on V. Turtle Ronk Corn 3 In so l ruling, the court distinguished a previous decision,by the Court of Civil Appeals holding that the exaction of park land o;, feas as a condition of development approval was beyond municipal authority. 4 The Court affirmed that charter cities have +1:ull power of self-government" and "look to the acts aL th4 legislature not for grants of power but only for 1-1r stations on their powers." D The Court also adopted a modified version of the rational nexus test as the proper rtandard for determining whether a feu ' i E j i 4 ~ 1 I iiGa)~1 Y. A Y ` 4 ordinance complies with state and federal constitutional guarantees, statingr 1 "Both need and benefit must be considered. Without a determination of need, a city could exact land or mo provide a money to park that was needed long before the developer subdivided his land, similarly, unless the court considers the benefit, a city could, with monetary exactions, , place a ` park so far from the particular subdivision that the residents received no benefit.... This type of 'reasonable connection" analysis will ensure that the subdivision receives relief from a perceived need, and it will I ' effectively constrain the reach of the municipality..." 6 The College station ordinance on its face met these criteria, ' 1 because it was based on a needs assessment, contained standards for determining the amount of the fee, earmarked fees f expenditure on for neighborhood parks within the vial development site and required that lees be a vicinity of the Years from the date of collection. expended within 2 ,r ' ~~l1C.e< of imnaa fee s at :r• ; 'r f Despite increasing litigation, surprisingly few enabling statutes authorizing the use of development fees had been enacted prior to the Texas legislation. 7 Enabling legislation offers a f i i r I "OHM '.g potentially attractive solution to the problems cities and developers face in the courtroom. 88 336 resolves questions of statutory authority by expressly empowering cities to enact impact fees for water, sewer, drainage and roadway capital improvements. Because the statute contains detailed provisions } governing the methodology and the procedures by which impact tees are adopted, it should serve to focus judicial inquiry on statutory intent rather than on broad constitutional principles i in the event of future litigation. i i At the same time, the enabling statute acts as a limitation on municipal home rule authority to enact development fees which f 1 jj fall under the definition of impact fees. The law expressly of applies to existing development charges as well as to ordinances enacted after its effective date, necessitating review of existing exactions practices. ;j The remainder of this article .x analyzes the key features of the 8H 336 and some of the ` implications. .gi~sxumstances ha ~ Aid o o j The approval of 83 36 by the 1987 legislature changed dramatically the circumstances in Texas regarding use of impact fees. Xn order to understand the structure and intent of the law as it now exists, it is important to understand the climate in which the bill was created. r 1 9 6 R several real and perceived conditions 336 sparked the creation of g t . The original bill was drafted by the Texas B Builders and t iled by Senator Ray Farabee of Wi8,$h0j0t1.4ti,onlar a. Whether real or imagined, three principal abuses played a role in spawning the legislative change. First of all, several Texas cities had enacted impact fees after having undertaken only token studies to determine the real impact of new development on their infrastructure. With for future growth, the development analysis of the potential t that they community being unfairly charged with the o is of providi ng adequate public facilities. Secondly, without some form of enabling legislation, there was no requirement in Texas for { public involvement in the development z and review of, proposed impact teas. Builders oite several in which impact ! cases ee ordinances were literally created overnight, i ~ s and passed into law without the public's ability to as sess the proposed ordinances. To further compound the problem in the eyes of the development community, an impact fee ordinance in one city would be totally different in Substance and tee ordinance in an adjacent city. procedure from the The TAB clearly saw a need for some form of standardization. The first two problems gave rise to the third reason for seeking a legislative aolutiont the high cost in the form of time and 1 . w, Y 'y t 7 f money to individually challenge what were seen as improper ordinances around the state, 0 So, as the dust settles from the regular legislative session, Taxes cities will begin to assess the use of impact fees to finance expansions in their infrastructure, _ Part x2 i A. Stat ory definitions i ' As with all comprehensive enabling legislation, the definitions 1 of SB 336 are important components of the statutory scheme. The E definitions determine such matters as the scope of the ' legislation, the residual powers municipalities retain to enact I ~ E fees under other grants of authority and some of the design a features which must be incorporated into the impact fee scheme, IImpact_ fas, An impact fee is defined as "a change or assessment imposed by a political subdivision against new U } development in order to generate revenue for funding or recouping the costs of capital improvements or facility expansions 4 necessitated by and attributable to such new development," The term includes "amortized charges as wail as lump-sum charges and includes capital recovery fees, contributions in aid of construction, and any other fee which function,w as described in 4 4 i' C this definition," This definition is intended to sweep broadly and to limit thereby the use of devolopment exactions practices which are inconsistent with the methods and procedures mandated by the Act. it cannot be understood without reference to the definition of "capital improvemehr," which means "water supply, treatment, and distribution facilities; wastewater collection and treatment facilities; storm water, drainage, and flood control facilitiesf whether or not located within the service area or roadway facilities owned and operated by or on behalf of a political I subdivision." a By implication, those facilities which are " neither included among capital improvements, nor excluded front the requirements of the Aot, cannot be funded t ` hrough impact ' I room.8 It should be noted that impact fees includ* the costs of ' expanding lxisliq facilities which serve "the same function as i an otherwise necessary new capital improvement, in order that the existing facility may serve new uevelopment.►► Further# the costs of oversixing facilities constructed prior to adoption of F the impact fee ordinance may be redeund through the fees, "Under r such circumstanceso cities may include interest charges and s other finance costs" in determining the amount of the impact too, if the impact fees are "used for the payment of principal and interest on bonds, notes, or other obligations issued by or on -1 X9]1 j 9 behalf of the z {city] to ainanaa the capital improvements identified in the capital improvements plan in each instanos, however, costs associated with upgrading facilities to correct existing system deficiencies or upgrade services to existing development must be excluded from expansion costs. E f Exalusians om car on o imnaa The definition contains a second ` part, however, which contains f ' express exci-jM from the definition of impact fees. Cities I can continua to employ practices which are excluded without E compliance with the provisions of the°.statuta. The first I" exemption is for the "dedication of land for public parks or payment in lieu thereof to serve park heads." The intent of the exclusion is to preserve the practices which were authorized for i ' park exactions under the Qhleare a ion ° cnsa. ConsaquentlYr } cities may incorporate such regulations within their c subdivision ordinance under the constitutional established in that case. guidelines The second exemption is for "dedication of rights-of-way or easements, or construction or dedication of on-site water distribution, wastewater collection or drainage facilities, or streets, sidewalks, or ourbs when such dedications and construction are required by valid ordinances and are necessitated by and attributable to new development.u The r. Onnw.,hnMAY.;..tuyyAnYi.1yF'..y.'W(.JJ:LI..._ l 1 ?O" i } 10 intent of this provision is to preserve municipal authority to require the installation of on-site facilities as a condition of development approval. The exclusion is qualified, in that cities may not require the property owner "to construct or dedicate facilities and pay impact lees for the same facilities." By the same token, cities may not require the dedication of oversized on-site facilities unless appropriate credit is given against impact fees. 9 } The third exemption is for "lot or aoreage lees to be placed in trust funds for the purpose of reimbursing developers for E oversizing or constructing water or sewer mains or lines." The exclusion permits cities to require developers to construct oversized sewer and water facilities (either on-site or off- site) as a condition of development approval, with provision for reimbursement from other developers benefitting from the improvements, These lees may be collected without being established undey the criteria of g8 516, it construction ` requirements pertain to a facility which is identified in the cityfs capital improvement program, the city must enter into a contract with the developer providing for reimbursement or . crediting his contributions against impact lees due an the project. I The Act also contains an omnibus exemption, providing that "this Act shall not be construed to prohibit, aftoot, or regulate any I M { tax, fee, charge or assessment which is specifically authorized a by state law." This provision clearly excludes special assessment practices. Because of its broad wording, it is also possible that the exclusion applies to sewer and water "user fees" which authprize charges for capital as well as operating costs.20 On the other hand, 8B 336 is clearly intended to apply to charges for such facilities. %t seems likely that a court called upon to construe the statutes would interpret them to bring such charges within the provisions of the impact fee statute. f New development, cities may incorporate the coots of facilities necessary to serve now development in the impact fse. "New development includes "the subdivision of lands or the construction, reconstruction, redevelopment, conversion, structural alteration, relocation or enlargement of any structural or any use or extension of the use of land' which increases the demand for additional capital improvements. Roadway lacilitias. Although roadway facilities may be funded through impact tees, the statute limits such facilities to "arterial or collector streets or roads which have boon designated an an officially adopted roadway plal► together j with all necessary appurtonancess.s.,' The bill excludes "roadways or associated improvements designated on the federal or Texas highway system." The Act also limits the area in which 1 I f II 1 V lYP E ..r.:,.. 12 road improvements may be constructs d with impact !e• lands to 3 areas inside the corporate limits of the city and within 9 miles , from the new development.ll service area The Act requires cities to establish "service areas" within which impact fees will be assessed and spent. Except for roadway facilities, service areas may include areas both within the corporate limits and within the extraterritorial jurisdiction of the city. Where appropriate the service area may be the entire jurisdiction of the, city I (e.go$ water treatment facility). The concept of a service j area is important in establishing that impact fees benefit the r property which is subject to the teas, f service unit, The Act also requires that cities delin• a "service unit" which serves as the basis for assessment of the impact fee. „service unit" weans "a stanAardized %assure of consumption, use, generation, or discharge attributable to an individual unit of development calculated in aocordahae with generally accepted engineering or planning standards for a particular category of capital improvements or facility expansions." The service unit concept is designed to assure r ' ` that the need for new capital facilities is proportional to the demand for now services generated by the development. F., 8. ltecuirad s +d~es now"- 13 The Act requires that, prior to adoption of an ordinance t establishing impact fees, a regulatory agency must conduct several studies to determine the real impact of new development on the infrastructure. These studies include land use assumptions, establishment of service areas, a capital improvements plan, and an analysis relating the costs of improvements to individual "service units", Land use assumptiona are defined as "a description of the service area and projections of changes in land use, densities, I intensities and population therein over at least a ten year I period." Note that the actual land use assumptions may provide f for a period of time greater than ten years. Yn preparing land use assumptions, cities have a least two options with respect to I methodology, i First, the city may choose to address growth from the perspective I of population ay}d employment, Census data, Texas Employment Commission statistics and local councils of government are j potential sources of historical data and projected growth rates f for regions, Using these national, state or regional sources as a baseline, a city will be well-founded in extrapolating local I growth projections from observed local conditions. f ~ The second methodology involves a projection of growth by specific units of measurement, such as numbers of dwelling units 6 4 "I S . 1 i j k { 1 t . 'i 14 by various types or employment growth by acreage or building square footage, while better local data may exist for this type of informtition, state and regional data to support a service unit projeotion may not be as readily available, Projecting the quantitative growth is only a part of the development of land use assumptions. The other element is assigning the growth to specific locations within the jurisdiction or service area. A city that has a comprehensive plan already has the foundation upon which the land use assumptions can be built, Obviously the final land use assumptions'should be consistent with the comprehensive plan, I t The second required study is the definition of the appropriate ~f service areas. (See previous definition), Service areas may differ greatly in composition depending upon the facility being YY. ' studied, For instance, water, sewer and stop* drainage service areas may be based upon the physical characteristics of the city, such as drainage basins or water pressure zones. Or, the Act permits the inclusion of the entire city and the affected ETA' L%to ohs service area, Roadway facilities, on the other hand, are more severely E constrained by the Act, it is envisioned that the service area y for roadway facilities be defined by the average trip length for the jurisdiction, but in no event be greater than three miles in Mrlv.I.r r.srnr . .r r _ .......w wrwrYV NNIAII .u ns . MAtl':arYirM NMOiM.r.wv.w S Of I a x i 1$ distance from the now development. Here again, a city has two principal alternatives in establishing the zonal structure. First, the city may adopt a rigid three mile by three mile, or grid, structure. While having the advantage of easy administration and definition, this type of structure tends to restrict the administrative discretion of the city, as any funds collected with a zone must also be spent within that same zone. The second alternative is to create a system which defines a "floating" three mile zone, with each new development plotted at the centroid of the zone. While technically more difficult to achieve, gee-based information systems ousrently available for mini-oomputers and personal computers will make this type of j f application possible. Of all the elements involved in the creation of an impact fee a` I program under the Act, the definition of the service area is one of the most important decisions to be made bj~ the city., p Carefully crafted, the structure of the zones can assist i n t implementing growth management objectives. They can encourage development in areas of the city where sufficient public services already exist, and they can discourage development in fringe areas where municipal expenditures may be the highest. The third study required by the Act is the capital Improvements Plan. Defined an ua plan required by the Act which identifies capital improvements or facility expansions pursuant to which ~ i i13 i t , ti , i WOMW F Aj k Aa?Ol A 16 i> impact fees may be assessed'O, the CIP envisioned in hhe Act should be a subset of the overall CIP for tba anmmunity. Note i E' that there should be consistency between thu community's overall CIP and the CIP that is a portion of the impact fee ordinance. Specifically the CIP required by the Act adresses only those g categories of facilities which are covered by the fee ordinance, and only those specific facilities or portions of specific facilities whose construction is necessitated by new development. The CIP must be prepared by a registered engineer and must inventory existing facilities within the service area. It must discount anticipated costs of ameliorating existing deficiencies .r in the system, and the costs of meeting needs not generated by 1 new development. It must also inventory existing capacity, currant level of facility usage, and existing commitments far j service to users outside the service area. ff ~ ~ i Cities must be careful to ensure that those facilities included within the CIP and listed as being attributable to new development are separate and distinct from facilities that will be built under normal development policies. The Act is clear that a new development cannot be required to both construct a facility as a requirement of permit approval and be required to pay a fee for that same facility, A significant provision of the Act is the exclusion of any state or federal highway improvement from the impact fee CIP. while ~ a Mal ■ 17 improvements to arterials or collectors crossing such highways probably will be eligible expenditures, the affect on'designated farm-to-market roads is yet unclear. The final study required by the Act is a "definitive 'table establishing the specific level or quantity of use, consumption, generation or discharge of a service unit for each category of capital improvements or facility expansions and an equivalency or conversion table establishing the ratio of a service unit to various types of land uses, including but not limited to f residential, commeroial and industrial This "use matrix" serves the purpose of relating the land use assumptions to the ICIP. I Certainly the most prudent course in creating the use matrix is f to utilize generation or use standards developed by nationally recognized organizations, such as the American Public Works Association (APW4) or the institute of Transportation Engineers (XTZ), While the Act does not preclude the development of locally based standards, care should be taken to carefully document and explain any local revisions to nationally or regionally recognized measurements of use, The culmination of the required studies is the calculation of the impact too. Generally, the maximum fee that can be charge ie. determined by dividing the cost of all improvements anticipated ..i .i VIN 11N V IbYRM la to be needed within ten years in the service area by the total number of service units projected by the land use assumptions to be built in the service area within the same period of time, The fee ordinance can establish any tee that is less than or equal to the tee determined by this calculation, C, Proneendinc fee ordinances once regarded by the development community as an area of 1 i , particular contusion and perceived abuse, the procedural requirements of the new legislation are specific, Public k involvement in the process is assured, i The Act requires the establishment of an Advisory Committee to aseist. in overseeing the implementation of an impact fee program, The Committse,may be solely charged with the duties required by to the City Plan osibl e assigned s n fe te i ities may b the Act, or the responsibilities . Commission, A clay would be well advised to create the Advisory Committee as early as possible in the toe development process, The Committee cart be a valuable resource in organizing the.-; required hearings and disseminating proper notice of the ordinance to the community, I The first required step in the adoption process is the development of the land use assumptionr. once this study has been completed, the Council must act a date upon which a public i { 1 p J I ~ 19 hearing will be hold to consider the official adoption of the assumptions. Notice of the hearing must be mailed by certified mail to any parson who has requested to receive such notice, and must also be placed in a newspaper of general circulation in the community. The newspaper notice has several specific requirements as to size of the notice and location of the notice in the paper itself. While a lack of strict compliance in this detail will not jeopardize the legality or a local ordinance, cities should be careful to follow these notification procedures as closely as it possible. rep After holding the public hearing on the land use assumptions, the f Council must approve or reject the assumptions within 30 days fj from the date of the hearing. If the assumptions are approved, the next stop in the process is the development of the Capital Improvements Plan. I k Upon development,of the CiP in accordance with the provisions of the Act, the proposed fee is calculated and an ordinance is 1,,roposed. Using the same methodology as required in the adoption of the land use assumptions, the city gives notice of a hearing on the CIP and the impact fee ordinance. The Advisory Committee } is required to review the proposals prior to the hearing, and ! file their recommendation not less than five business days before the hearing. i I I { i { 1 I E t ZO After the hearing, the council again has 30 days in which to either approve or reject the capital Improvements Plan and the ordinance, No ordinance may be adopted as an emergency measure. Based upon this schedule, adoption of an impact fee in Taxes will i require anywhere from six to nine months, depending upon the rate at which the required studies can be completed, The Act requires that any impact fee ordinance be updated at least every three years. The update procedures are the same as l those required for the original adoption of an ordinance. I f D, The ultimate output of the studies and public procedures required i i by the Act is an ordinance which conforms to the statutory ' intent. The Act also establishes guidelines for the assessment and collection of fees, the use of the fees and the administration of the funds, These features must be incorporated into the ordinance together with the fee schedule and procedures for amending the fee, Earmarking and accotnt M, 9B 336 requires that "all funds collected through the adoption of an impact fee shall be deposited in interest-bearing accounts clearly identifying the category of capital improvements or facility expansions within the service area for which the fee was adopted." Expenditures i I ti i, I 21 from the funds must be earmarked for the purposes for which the impact fso was imposed as shown by the capital improvements plan This requirement derives from court tests which mandate that lees be used to benefit the property subject to the lee. It is important to note that the Act does = require that a separate account be established for each individual improvement to be funded through impact fees, it is necessary to establish f different accounts only for aatAggries of improvements and by service area* it is thus possible to aggregate funds to i ; complete certain improvements within the service area. i j gefyn, The Act also requires that impact fees be j refunded. to the record owner of the property, with interest, under two circumstances, First, fees must be refunded if not spent for earmarked facilities within 10 years from the date of collection, (Compare the 2-year period in the College Station park fee ordinance.) seoond, fees must be refunded upon request of the owner of property on which an impact fee has been paid, if services are available and the city denies service, or if the city fails to commence construction of now facilities to serve the development within 2 Years or fails complete such facilities within D years of the time the fee is oolleoted. Finally, upon completion of the capital improvements for which the fee was I P "Owl r r. 1 Few 22 oolleated► the city must recalculate the impact fee based on the actual project costs, in the event that the fee based on actual costs exceeds the fee paid by more than lot, the difference must be refunded to the property owner, r i assment and co>leo ion of impact tees. The Act distinguishes between the assessment of an impact fee and its collection and establishes rules for each. Assessment is defined as "a determination of the amount of the impact fee in effect and is the maximum amount which can be charged per service unit of such development." Once an impact foe is 1 ' assessed, it may not be increased for the type of capital j improvement against the traot "for any reason, unless the number 4 of service units to be developed on such, traot increases." in f this event, the city may increase the assessment to fund new capital improvements in an amount "attributable to the additional service units, of Normally, this would occur in the event that the owner or developer submits a new development proposal which; inoreases demand for new services, in general, the Act favors assessment of impact fees at an early stage in the development process in order to establish certainty about the costs the developer must bear for the project, The usual time for assessment is no later than the date of racordina of the final plat for a subdivision of the property However, i ~I „x 11 i Mal r I• 23 assessment may occur at "any time during the development approval 6 and building process" if both the fees were adopted and the land was platted prior to the effective data of the Act, or if the development proposal does not require platting, The usual time of collecting the impact fee is either (1) the time of issuance of a building permit; (2) the time of issuance of a certificate of occupancy) or (3) the time of connection of the development to sewer or water utilities. Pass may be r, collected as early as the data of recording of the final plat. j There is an important grandfather clause which must be included in the ordinance adopting impact fees. 9B 336 provides that impact fees may not be collected "on any service unit for which a I valid building permit is issued within one year subsequent to the date of adoption" of an impact fee ordinance enacted after the effective date of the Act, as long as the land was platted prior adoption of the fee ordinance. Finally, the Act permits the assessment, but ~ the collection of impact fees in areas where services are not currently available. This provision does not apply to roadway facilities. It is intended to implement one of the cornerstones principles of the Act, that a new development for which an impact fee has been paid is "entitled to the permanent use and benefit of the services for which the fee was exacted and shall ba entitled to { Y if Jy t P4 receive immediate service from, any existing facilities with actual capacity to serve" the development, subject to compliance with other valid regulations, A fee may be collected under such circumstances, however, if'the city and the developer execute a contract for construction or financing of necessary facilities, which contains provisions for crediting such contributions against impact fees or for 4 reimbursement from fees ~ paid by other new developments using the facilities. Alternatively, the city may elect to collect fees f and commence construction of necessary facilities within two { years and provide services in 6 years, i E Failure to provide the services within the statutory time frame may result in a suit for specific performance for the services I for which the fee was paid. (A property owner may not co)n; s2 I construction of a specific facility, however, using s performance.) cities are thus advised riot CO CollAtsf+}1e ae if there is not reasonable assurance that facilities can be oommenced and constructed within the statutory time frames, it is important to understand that any problems associated with this restriction arise only if cities approve subdivisions without corresponding assurances that the development project can be provided with adequate public facilities, if facilities are not presently available and such facilities are to be financed in part through impact fees, then it is in 6 city's best interest to ny numb r.! Y 1 25 enter into a development agreement with the project owner as authorized by the statute. E, Conforming existing ordinances to reauirements of Act S8 33d applies to existing development charges which fail within the definition of an impact fee and which are not otherwise exempt under the Act. The Act contains two time frames, First, existing impact fees must be replaced with an ordinance adopted pursuant to the statute within three years of the effective date.12 I I Both substantive and procedural compliance are required. Second, within one year from the effective date, the city must l bring its fee schedule to no more than lot above the maximum fee vh ich could be assessed under the Act, otherwise, the city may be liable to an owner who has paid an impact fee after one year for a penalty equal to twice the difference between "the maximum f impact fee allowed and the actual impact fee imposed, plus reasonable attorney's tees and court costs," Because only the amount of the fees are compared, it should not be necessary to follow the procedures for adopting impact fees under the statute in order to amend an existing fee ordinance to avoid the penalty, It is advisable, however, for municipalities to evaluate existing fees under the methodology prescribed by the statute as soon as possible, The first step in the process involves identification i' 1 a i Ef 1 h 20 of charges which qualify- as impact fees under the statutory definition/ prime candidates are "acreage" or "front footageof assessments imposed on now development to recoup or fund the costs of extending sewer and water transmission facilities. Certain "escrow" funds collected for construction of off-site facilities may also be classified as impact fees'.' Cities may wish to take the opportunity to examine all development exactions practices it conjunction with evaluation of fee ordinances, Both the Act (and constitutional provisions--see below) mandate that municipalities avoid double-charging i developers for now capital facilities. Thus the Act expressly requires that "any construction of, contributions to, or i dedications of off-site roadway facilities agreed to or required by a [city) as a condition of development approval shall be credited against roadway facilitiem impact lees otherwise duo from such development." 13 In undertaking such review, it is important to keep in mind that the Act allows cities to charge the costs of capital improvements necessitated by and attributable to now developments Thus if it becomes necessary for the city to modify right-of-way dedication requirements, additional costs of right-of-way acquisition may be incorporated in the amount of the impact fees The Act also amply provides for developer agreemantss Thus 1 b. ~ S 1pLW . 1 1 27 cities are authorized "to enter into an agreement with the owner of a traot of land for which the plat has been recorded providing for the time and method of payment of the impact fees." Agreements may also may extend the time for performance of municipal obligations to provide services if "the owner voluntarily requests the ...rcity) to reserve capacity to serve future development. Finally, the city is fully authorized to enter into participation contracts with developers to provide necessary facilities in exchange for appropriate oreditss 14 I F. MLgoollansous_ Provi ons and ,Considerations Judicial review and administrative appeals, An aggrieved owner may bring suit for do nova review of an impact fee i ordinance only if (i) the action if filed within 90 days of adoption of the ordinance And (2) the aggrieved party has 4 "exhausted all administrative remedies„ provided by the aity. As previously noted, the plaintiff may be entitled to specific performance for services promised. The successful litigant may also recover attorney's fees and court costs. The Act expressly provides that Plan impact fee shall not be held invalid because the public notice requirements were not complied with if compliance was substantial and in good faith." i Cities should gain maximum advantage under the statute by I t -y 28 establishing „administrative remedies" in the impact fee ordinance by which a property owner may obtain relief from harsh Y application of its terms. Some procedures are in, fact required by the Act. Thus the city must afford a person who has paid an impact fee the reasonable opportunity to "present a written ' request to the governing body stating the nature of (an) unperformed duty and requesting that it be performed within 60 days of the request." if the governing body concurs, it must cause commencement of performance within 60 days of the. request. This sort of procedure serves as a safety valve for needless lawsuits. Cities may wish to consider a similar procedure for all development exaction techni cues. I f ` Policy considerations ~n ay~ntvinc~ ~M►+.N« fats, The Act does ngt require cities to assess impact fees against all new ' development, A city may make reasonable olaissificntions in its ordinance, including exemption of some classes of users from ' impact fees in order to foster valid regulatory objectives. For example, a city could choose to create service areas selectively ` throughout the city in order to encourage desire bl e growth patterns. Similarly, the city might decide to exempt low and moderate income housing from , payment of impact fees in order to ' encourage affordable houoin g . 15 Stroh decisions are subject, of course, to constitutional guarantees of duo process and equal protection of the law. I -10 17 t 29 t z Prohibition on certain +~OM.+....e gg 336 forbids oilier to s place a moratorium on new development "for the purpose of awaiting the completion of all or any part of the process necessary to develop, adopt or update the impact lee." The obvious intent of this provision is to prevent cities from soliciting support from property owners for impact lees by threatening a greater evil, This provision should not be interpreted as an encroachment on a municipality's police power to declare a services moratorium which is reasonably related to t. preservation of the public health and safety, even if the { Ultimate result includes a decision to impose impact lees. ~inistrst~va costs and Qonslt wars, The statute contains prohibitions on the use of tees to 'fund certain expenses associated with new capital improvementes These arer (1) "repair, operation or maintenance of existing or new capital j improvements , " t (2) "administrative and operating costs„ of the city; and (3) the coats of preparing the land use assumptions, capital improvements plan and impact too ordinance, it ,performed by municipal employees, on the other hand, the Act permits cities to include in the calculation of the fee "the fees j actually paid or contracted to be j paid to an independent " qualified engineer or financial consultant preparing or updating ' the capital improvements plan who is not an employs* of the i political subdivision.if Cities should thus consider whether to N: yy Vt91VM ~ is Y 30 use consultants at an early stage in the adoption of the impact fee. !I In t Coas aLSa='16 -il. the United States Supreme court ruled that a beach access dedication requirement imposed by the Commission as a condition Of permit approval constituted a taking by regulation in violation of the Just Compensation Clause of the Fifth r+mendment• In its opinion, the court emphasized that it would apply a stricter standard in evaluating taking claian than it does in review of due process and equal protection claims. I 1 order to pass muster under the Lust Compensation clause, e development exaotiols must "substantially advanaM a " 4 " legitimate state [Municipal] interest." The requirement of a nexus between f the exaction and the asserted purpose, of the regulation is especially important "where the actual conveyance Of made a condition to the lifting of a land use restrictiProperty is on, since in that context there is heightened risk that the purpose is avoidance Of the compensation requirement, rather than the stated police power objeotive.n 17 This decision Will require reevaluation of the exactions practices of many cities. For example, some municipalities require the dedication of right-of-way for road in subdivision regulations without regard to the Impact created by a particular development project. Although such praotices may not directly r . -10 31 t, conflict with the holding of the Noll&n case, courts can be expected to examine challenges based on such polioies more closely. To the extent that standard practices must be revised, the consequence will be that acre public funds will be required for acquisition of right-of-wayo in turn this may occasion expanded use of impact fees, which incorporate the costs of exces, right-of-way in the fee structure. Conclusions BB 336 is both an enabling statute which expressly authorizes the j use of impact fees and a limitation on munioipal home rule I ! authority. The statute resolves most questions concerning the authority of cities to use development charges to finance new capital facilities, At the same ttme, the Act establishes a complex framework of mandatory substantive and procedural requirements which must be followed in order to validly adopt an impact fee. The Act should serve to refocus judicial inquiry on questions of statutory intent rather than on broad constitutional questions. Because the statute standardizes the methods for adopting impact fees and includes detailed guidelines for the design of impact fee ordinances, it may well avoid much future litigation over development charges. nw I ~bfaMlf . 1 Z 5 32 Cities which now use development charges to finance off-rite capital improvements to serve new growth must oonfors existing fee ordinances to the statutory requirements within specified time periods. The Aot, together with recent court deoisions, should serve as the occasion for cities to reassess all development exactions practices to assure oxaotions are both effective in implementing municipal policies for the provision of public facilities and services and equitable. At the same time, preparation of documents to support impact fees can be integrated with the cities' overall efforts to develop comprehensive plans and capital improvement programs. It ifA impossible to anticipate all the ramifications of 88 336 unt',61 cities have had the opportunity to work with the provisions of the statute. As with any oomprehensive legislative scheme, I the proponents and opponents are likely to regroup for the next p legislative saeion to modify and adjust the mechanics of the Act, haoause the statute is the first of its kind in the country, the experience of Taxas cities may well serve as the model for statutory schemes in other states. f 1 I N Wnn1V . , ,I 33 i Endnotes 1. In part, the authority resides in the states subdivision laws, TOO,Rov.CiV.Stat.Ann. art. 974a, A 4 (Vernon 1969), $ 2. See a.g,, Bauman & Ethier, "Development Exactions and Impact Feess A Survey of American Practices,10 39 Land Use L, & Zoning Dig, no. 7 at 3 (July, 1987), 3, 680 S,W,2d 802 (Tax. 1984), 4, Berg Development Co. v. City of Missouri City, 603 S,W,2d 273 (Tex. Civ. App. 1980). S, id, at 807, 6. Yd. at 807-808. The mostly widely used standard for I evaluating the constitutionality of development exactions is the "rational nexus" test, under which a development charge will be sustained if a dual connection is established, First, there must be a proportionality between the need for new capital j facilities generated by the development, and, the amount of the foe, Second, there must be a reasonable connection between the funds colleoted and the benefits 'accruing to the development, this is accomplished if the tee is earmarked for expenditure in an area which benefits the users of th'i devalopt Intl and is spent within a reasonable period of time. Florida courts h iva used the rational nexus test to sustain impact fees, Se.; allot Homs Builders & Contractors Asstn v, Palm Bagoh County, 446 So,2d 140 (Fla, App, 19831 sae also Contractors & guilders Assn of Pinellas county v. City of Dunedin, 329 So.2d 314 (Fla, 1976)6 If the enaction ,meats the requirements of the test, the measure also will be classified as a regulatory exercise rather than as a tax. 7. See Ariz. Rev. Stat. 9.463!46 g provision)? ' j (general enabiin Cal,oovit Code, if 66477 (park and recreation fees) 1 6 $5970 (school facilities)l and ! 66484 (roads and bridges)t N,U,Stat,Ann, i 40MD-42. A comprehensive bill similar to that enacted by the Taxis legislature was considered but was defeated by the Florida legislature during the 1987 session. Sao Fla, Senate gill 119$, 8. Thar* is another possible interpretation, ` The definition of nimpaot fee" applies only to the defined capital limapeovementso It is arguable, then, that capital improvements not included in the Aot such as fire 'stations o0 without compliance with the Act, This bintefunded through rpretation must be juxtaposed against the overall intent of SB 336, G j ....ar~ IN4aS4f 4",~SS wYYU owl I 1 ' ' WtlST11 1 ' 34 1 9. These practices run contrary to the unified States Supreme i court's recent decision in Hollan California Coastal -U.S.-- (1987). See discussion below. 10. See e.g. Tex. Water Code ; 26.176. 11. The limitation is actually the lesser of a distance equal to „the average trip length from the now development" or three miles. 12. This is the same time period for updating impact tee ordinances, 13. gecause on-sita contributions are exempted from the hot it reasonable necessitated by and attributable to the development, cities should not be required to afford credits for these exaotions. 14. See also HS 1889, which exempts developer participation contracts in cities with a population of over 60,000 from competitive bidding requirements. j 16. Under this exam le, the city could not recapture potop+}ial lost revenues by raring the impact too otherwise duo for,, ~iher classes of users. 1 16. -•U.SI--/ •~B.Ct.-~ (1987). 17. Slip op. at 16. { j i r i .J c Ir"5'/Y:'N 1 raltiva ^'a~~ 6 Manning Decemller 1987 . I 20, qq~ 1d ' r Exactions Put to the Test Local governments across the country are, counting on impac! fees and other exactions to ball out their budgets. r- _ Recent court challenges are making them nervous, ~•.~-Y+{'l ' _ ul,~ y By William Fulton J I rY ' ✓ ~ ;~;.a. it ~ i t1 air B e(ween February and October of this r'~~ s Y 1 year, the Newport•ASesa School I)is• tricl in Orange County, California, raised more than $1,3 million--about $81 for every student In the district-by Imposing fees On local construction, The fees {51;60 a square foot on residen• liai develOpmenl, 25 Cent$asquare fool on f contmer,.`al and industrial projectsl are supposed ;o help the school district come UP with local matching funds for state school construction grants. But even r vs1 ' though elementary enrollment is Increaa• ing, (6101 enrollment remabrs stable at about 16,000andthe need for newschOOls remains questionable, The district has f more than a dozen empty elementary schools, and the district's finance director says that most of themoney will beused to upgrade high school science labs. Legal under n package of bills passed by M l kYL~tledf .~.,ti[.e.ag M.,V d o I p 9 the Cnlifnrnla Iegislalure last year, with Colorado arunner•up-Ilspopularity `V Newporl,Mesn's development fees are is spreading fast. According to Michael beingchalicngedimcatribylocatbu(Iders, Slegman, chairman of the Department of who say lmpacifees shouldn't be allowed Urban and Regional Planning at the when new growth doesn't have anlmpaet• University of North Carolina andauthorof "Where's the link?'they ask, a recent book on exactions who has stir. The California example Is no( unusual. veyed Impact fees nationally. they haveaf• Throughout the country, pressures are fooled up to a third of all builders hi the growing on local governments to Increase North Central region and over a fourth in '+~y exactions on new development-to do• the l3asl, mand that developers provide land or pub- The Homer Hoyt Center study reported j' Pc facillliesor pay fees to handle the costs two years ago that Impact fees were often of growth In exchange for permission to used ht "growth islands" of the Northeast build, With local lurisdict(onsunwi11ingor and Midwest. But now, Slegman reports, • unablo braise tnxesorfloat bond Issues, ex, Impact fees are becoming popular even in JJ ~ ~ aellonsareoneof(hefew tools both legally aronsthalarenot booming. Asevidence,lie iI avnilableandpolitically acceptable to hall. points to Anne Arundel County, Maryland, $ (Ile the costs of growth. whichantic] pales growth of one percent it Faced wlthsuchdemands,local planners yearin(lie 1990sbut recrntlyImposed de• g J~ Fy1,`s, are hard pressed toanswertheViieres(lie veiopment impact fees anyway. Like the Ihtk?'question. Slate courts have always re. Newport-Mesa $Ch00lDistrict In Cal(for. r•. 'S;, r~'; +ia; quired a'reasonable relationship' between nln, Slegman says, local governments in lhedevelopmentinquestion andtheexac• low-growth areas "are looking to Impact \ lion being demanded, particularly if the ex. fees simply as revenue replacemem:' action is a fee, But following the U.S. At lhesametime (hot thedemandfor ex• Supreme Court'srulhtg in Nollart %t Catilor• actions grows, however, the rules that gov. WWa Coastal Commission Jost June. the exac- ern them are tightening up. Under last f t ' lion linkage Issue has become hotter than summer's Nollan ruling (see "lbkings Stir ever. Today, unless a direct link can be Up a Storm;' September(, a direct found, an exaction may be deemed tovio• development•exacilonlink Is required-•- late the U,S, Constitution. not just a "reasonable relationship." No impact fees and other exactions nation longer will local governments beable to lap wide are raising some $ I billion a year or a developer for an exaction and (hen drop more In cash and public improvements. the money in the general fund, As zoning The exact figurefs hard to pinpoint, but re- lawyer Fred Bosselman noted recently, un• + gionnl estimates suggest the scope, In derNollon,'the ullimateuseoftheexaction Florida,JamesNicholas, an(mpactfeecon• becomesan(ssueofconstitutional dimen• sultant associated with the University of slons:' Florida, estlmatesthat Impact fees are rais• In ndditton, a few state legislatures are f Ing$345million ayear. Before theCaltfor• beginningtopuss lllelrownlaws regulating L nia legislature passed the school fee local use of impact fees. On the one hand, • t legislation last year, advocates estimated It that means that local governments for the would raise $200mlillonto $400m(16on,a1• first time will have legislative authority to though theynow believe thefigure Is lower. impose Impact fees. But It also allows the A 1985 survey by Florida Stale Univer• state to limit their use. Sr sky's Homer Hoyt Center (sponsor ofa new APA book, bevelopment&aelions---129.95; tinahl.l,twl sr, APA members, $26.951 Indicates that for The underlying reason for all this aellvity several decades the most common exac• Is simple. State and federallnfrastruclure lions have been requirements for new aid has dried up. In some states, property I roads, water lines, sewer lines, and cirs(n• Inx Increases hnvebceli outlawed; m others s age facilities. But the fastest -growing--and they are difficult lopass,Astor general ob• most talked-about -type of exaction today ligation bonds, once the bread-and-butter i Is(hefeeonnewdevelopment, often called of community growth, they are now the Impact fee. Once limttedtopaymentsin viewed with suspicion by the elceturnte, m lieu of providing parkland or a sewer sys• which must approve them, APA president E tam, impact fees now Include payments to Jamesbunean,all Impact fee consultant In cover thecostofad dilionnlroads,schools, Austin, Texas, nofesthatbond issuesarcof- libraries, affordable housing, and transit ten regarded as expensive and growth- systems, Inducing by local citizens unwilling losub• sidize new development, • Sprradiogfast Thissltuallonleaves exactions as one of • Although the geographlccenters of the im• the few alternatives, a state of affairs not V Pne, pact fee are still California and Florida_ everybodyishoppyabout, Asmnnyexpcrts ~1 l I. e #+Wfk1 gl•kM9N t 8 Planning December 1987 have no led, even the I, at,leexaclions carries negativeconnotallous, implydngsomelcu• ti i ifs Balking's demand forapound offlesh. 7b iii' sonic planners, exactions are a solution, ~NS r?tt~t creating revenue where It's needed, 7b Itt~l " ` t others, they are n problem, allegedly driv si 1 *T 1118 up the cost of doing business, bc• try; ro*i6s,2J T-1 , u e r< velopersoften have their own lobelfor (fie qrr : rvt ,k ~ devlcc:axnct]oil,ex to rtion,ransom,Iributc. Many gripe, but most pay In order to get i• their projects approved, Exactions haven't always been asked to carry Oils big a lond, but they hove been e ' around for decades, Their roots are in the *,•>r i Standard City Planning Enabling Act of 1927, the legislation lint encouraged com• C~ ; a k,',~}"'T { ; i ' munities to draw up planning documents F~+•'7 4 } yin t and regulations, Theinw recognized that Ic. ; ca Igovernments in lghlrag Ulto the dedlca• E t, yti' lion of streets or water and saver lines'ps a condition precedent io the approval of the u ' plat" Close to 10 percent of the communl• lies surveyed by the Homer Hoyt Center had adopted sonic sort of road exaction (land dedication, construction require. meat, cash payment) before 1950, During the suburban growlhspurl of the 19506and 1960s, developers were required to dedicate land for parks and scinools, or to build roads or other public facilities and then turn them over to the municipality. Sometimes builders could buy their way out of the obligation with a payment in lieu a of providing [lie actual land or building. i The 1970s brought two important devel• E opmenlsi off-site exactions and negotiated exactions, Strapped for cash for needed im• provcments, some jurisdictions lparticu• ) + `i~'+ y larly In California, where the courts were lenlenl) required In-lien payments for f X14 of 4' ' roads, schools, or libraries that were no. y r ` where near the development in questlcn; r they were acting onihetheorythat lhede• • ! velopmenl Increased the overall demand n . V for those facilities. sr" 1, t; ' f With the adventofenvironmental review laws, local governments also gained the power todemand (hot developersmitlgate the advorseeffeclsoflheirprojects. Mitiga• k ^p' ' tion could lake any forih gland; buildings, cash iandwasusually ne8otialedonacase. 't' F~► ,rr;w~%i,r, , 1 ~1 t r,+,; by-case basis, Again, California was the leader because Its courts ruled as early as k, 1972 (hot Ihesta[a'sanvlronmentoI lowsa r i , , s ~ k s Plied to private development projects. Recent surveys show that the vast t fhafn ti' t majorllyeftocaljttrisdlctionslnllscUnlled 1 adetinproveJrrenh States still dnnolrequire exaclionsfrom de• vclopers, But the some polls also suggest MAlwayerequlnd r ,u• Some/lmarrqufrtd , 1 that exactions play an Important role in l~ Most jurlsdictionswhere rowthIsanIssue. 1 g FlequanRyrequired INeverrequfredornoamwer E For example, the National Association of Home Builders reports that most of Its { 'i t h.W A I 9 a w •members have been required to provide velopmenl's "fair share"of the community Nollan systems even before Nollan came some sort of exaction In exchange for per. growth costs and that exaction fitodi beear• down. !n San Francisco, downtown office r mission tobulld-mostof(enanon-site ex• marked for projects directlybenefltingthe develop eismust payatransit Impact fee, y acllon. project. and In Santa Monica office builders must The NAHB survey also shows that Call. Although many states adopted some ver• provide housing. Ineach case, however, the t fornia Is the undisputed king of sionof the "rational nexus" lest, other con city did extensive statistical analysis be. exacllons--particularly the less traditional servativestale courlsalsosought to relnin forehand todeterminejustwhat relation. t off-site exactions and Impact fees; 82 per. their munlcipall ties, In Utah, the courts ship exisis between development and cent of NAHB members In the stale went a step further thnnFlorida hadbyrul• exaction, reported paying some kind of Impact fee. III IngIn1982that municipalities must calcu• Asa result, when a California appellate contrast,only28percent ofhomebuilders laic notjusl anew project's fair share of the court upheld SanFranclscdstransit fee,the i in [he South (including Florida, where fees community's infrastructure needs but also judges remarked that the statistics would are a high-profile issue) werc affected and "past, present, and future fiscal contribu• probnblyjuslffya fee even higher than the absolutely none In the Norlheast. lions;' $5 per square footcurrenilybeing Imposed. (The court's ruling, however, turned on e I egal chuilengc~s rdlun impllrutiunc slate constitutional lax Issues rather than At the some time that exactions have been TheNollancaseprovides, forthefirst (ime, Nollan•typeexaction questlons.) growing, they have been subject toaserles a national standard for exactions-and ICs Theone thing Nollan might do Is push lo. of rigid legal lesls-partlcularly the Impact far stricter ihan many planners wanted or cal governments toward fee systems In- fees, which have had rough going in the expected. The Supreme Court ruled that, If stead ofotherkinds ofexactions, ItIshard courts almost everywhere except Cali. (he relationship between Aproposed proj• (oproveadirect link between construction II 1 fornia, ectand an exaction Isn't strong enough, (hen ofanewsubdivisionandtheneedforafree. The Nollan case brought (he legal issues the exaction is really a taking of private way Interchange several miiesaway. But it to national prominence. Butthesameques• properlybythegovernmentunder lheFifili is relatively easy to calculate the overall lions have been battled out in stale courts for over 20 years--ever since 1961, when the Illinois Supreme Court ruled (hat exac- Mons had to deal with demands that are "specifically and uniquely attributable" to Land Provided by Cash the development for which they were In, Fbrrnala•based dedlmUon developer tended. Standards with In the 1960s, as clues began to seek off. some flexlblil site exactions, some legal scholars Caubycase promoted the Idea that sueh exactions were legally correct lftherewasa'rationalnexus* Varies i orreaaonabferelationship between lhcex• Notappileable action and the development. Thus, In•Iieu or na answer + payments fornn in(erchangeor park on the other side of town could be supported le• gally ifthe now development Increased the Here'shmveractlonsarecowpaledbithe J3lcnrnnn+alNessnnwyedlrr1985 domand for them, by the llarnrk Hoyt Center, ( But rational nexus meant different things r in different states, In California, where [he Amendment of`theUS Constitution, courts generally defer to local govern meaning the government must pay for the menu, the rule has been applied liberally property. Henceforlh, the Court ruled, ex. Staying Legal As early as 1971, California courts had actions must bedirectly linked totheproj• concluded that the rational nexus lest was eel at hand, and the burden of proof must 'texas impact feeconsuitant James Duncan met if an exaction had evenanIndirect con- rest with the governmeotagency doing the offers the following cheekllstfor making nection to the project in question. exacting, sure your Impact fee stntemenl meets the Inothers(ates,thebattle forexactions-- Although the Nollan case M first ap• "Wheres the link?' test, and, In particular, for Impact fees-was pearedtodealabigblow iopublicAgencies, • Is your program grounded In prior tougher: In Florida, for example, where ht fact the rules the Supreme Court Iuld planningand capital programming efforts? growth pressures and a conservative judl• down are not very different from the rules • is theproposed infrastructure expnm Clary have not alwayscoexWedpeacefully, many rounlcipalilies•-parileularly (hose Sion required by the new development? thecourlshave required adirect link and it outside California --•arenowfoilowing,por • Are fees apportioned according to ,a j r strict accounling--whenthey've permitted example, Florida'scourtrequirements that "fair share" formula? exactions and fees at all, Impact fee systemscalculatefair shareand a Are funds earmarked for specific s Although Impact fees become common earmark funds III special accounisarejusl projects? practice in thes(ale's fast•growing counties Ilse sorts of steps Nollan encourages local • Will the funds be used In ways that in the late 1970s, It wasn't until 1983 that a governments to take, it'sall par(of proving provide "substantive benefit" for the de• Florida appellate court ra(ifiedtheconcept. the direct link, velopment In question? Today, Florida's lough rules include a re, In fact, even in California, many local • Will the funds be spent in a ilntely quirement that anexaction represent ade• governments had begun to establish post. wry? i 1 J 1 10 Planning December 1987 r t rieedfornewinfrastructure andIhenassign them to build the roads and sewers and capital plans must be updated every three eac h new p roj act I ts fal r share of (he cost for then turn them over to the city, no they will years; andIhefundsreal Nedmustbeapent [hat Infrostruclure.It's also possible to use be ready when the construction projects within 10 years, I this kind of slalistlcally bast,rd fee structure are complete. Although developers InTexas pushed for I for growth management rurposes. the law in part to limit the use of Impact fees, Duncan notes that, because of the Robert FrellicF :t Kansas City land-use Smite Ijieti lawyer and co,~ai.'eant, has helped local With theNolloncase outoftheway,lt'spos• planning requirements, the legislation governments in San Diego, Sarasota, sible that action on the exactions front may amounts to'thefirr.tland-use planning ana• Florida, and elsewhere set up just such a shift from the courts to the state legisla• bling legislation ever passed In Texas" 4 ' system, Called "flexible benefit assess. lures, In the last few years, legislatures In But state laws, too, must follow the Nob ments" In San Diego, the method in effect several states have considered bills that fan guidelines, and that's why builders in i places a fair share lien on each parcel of would govern exactions, and in particular Orange County, California, have ehal• r property, which is payable when the parcel Impact fees, lenged Newport-Mesa's fees in court, The (developed. Up to this year, the California legislature builderaclaimthat it'shordtodeterminea ± Also In San Diego, Frellich established had never explicitly authorized local gov. direct link between feeson newconstrue. three growth zones- essenlially, urban, ur• ernmentsto collect Impact fees Ithe courts tion and the rehabilitation of high school banizing, and rural-with three different have taken care of that), although last year science labs, especially when the high fee systems, Developers in urban lalready legislatorsgave (he slate's 1,000 schooldis• school population Isn't growing, developed) areas pay no fee. Developers in tracts, such asNewport-Mesa Unified, the The California law, drawn up in haste by urbanizing areaspayfeesthalareconsider. power to levy such fees. This year, thelegis• the legislature and Gov, George Deuk• able but do not discourage growth, De• lature passed a law, scheduled to take effect mejlatisstaff last year, larAspecificabout velopersinrural areas, because they must In 1989, thatestsblishesrules for all impact making the rallonai nexus between need pay the full freight of long•dlslance infras• fees. And earlier this year, the Texas legis• andexaction• In fact, ihestate'sprlmemoll• tfuclure, must pay very high fees. laturepassedwhatmaybethefirst compre• vationIn passing the law was not nexuabut In growth management terms, the sys• hensive statewide Impact fee legislation. money-to allow school districts the abib tem has worked almost tooweli. Whereas Originally proposed by developers, the ity to raise construction money that the Frelllchexpectedolderareas toattract only Texaslawlook flnaishapewiththeInvolve* state could no longetprovide to,them. lopercentofthenewgrowth, they drew60 mentofJames Duncan andotheisrepre• California lesislatorsare currently prgu• percent. Rural areas remained virtually un• s^nting the Texas Municipal League IngabouI how to work out the kinks In the ' changed. Thenewlawdoesn'tcoverall possible lm• law.Theyareeager tomake this newreve• However, the San Diego example also pact fees, But It does authorize cities to as. nue source work smoothly. But like law. points up a 'hazard of relying too much on sess fees for water, wastewater, road, and makersin other states-and on thecity¢nd €t feesrstherthan dedications or other kinds drainage facilities. It requires that a formal county levels--they must first ask thotn• [ of exactions: Having the money on hand planning process precede the imposition of selves, "Where'sthe link'r After Nolftl►l1, 0 does not necessarily mean that It will be the fees An advisory committee must be up to them-not the developers o , tffo6 I used. New construction In the city Is run. appointed, 10•year population and employ- courts--lo prove the connection I ning ahead of new Infrastructure oven meat growth projections must be estab• - - thoughsome945millionlnfeessitsinthe lished, and a capital improvement plan William Fulton is a contributing editor of bank. Developers are asking fora more must be prepared. Fair share coots must be Planrnfns. flexible system--one that would allow determined; theland-use assumptions and A Fair Share Model How do you compute a project's "fair share" of community eralgranlswilicover 25percent ofthecostitl78,78perhousel, 1 growth costs? Here's the hypothetical example that James Also assume that a park bond Issue has already been floated Nicholas of the University of Plorlds uses in his APA-sponsored (due In 20 years), and that taxes on the undeveloped property Impact fee workshops. The example Is for a park impact fee le. already contribute 10 percent of the payments on the bonds vied on residential development. {571.611: First, determine the demands that a single new house will Also assume that the laxrato for debt service is 6(1 centsper place on the community. Then translate those demands Into $ 1,000oftaxable value andthat the now houses will have it tax• dollar amounts, able value of $50,000, That means eact, unit will contribute $26 Assume, for example, that your city's standards call for 7,5 a year (for 20yeai'si, or5500, toward repayment of thebonds. acrosofparkland per1,000people,Each newresidence Islikely At seven percent Interest, thenetpresent value ofthal3600is to house 2.6 people, and the cost estimate for a new park Is $264,86. 538,140 an acre. Finally, determine the net cost of providing the new develop. 7b calculate each unit's "fair share": merit with parks. $38,140 per acre x 7.5 acres - $286,050 per 1,000 Park cost per dwelling $718.13 residents, Less: $286,05011,000 - $286.05 per capita, $286,06pereapi• Statelfederalgrant 126%1 178178 to x 2,6 persons/house r $718.13 per house. Portion paid by undeveloped land (104b) 71.61 Next, determine what revenues, other than fees, will be Credit for future bond payments 264,85 j available to provldethe new parks. Assume (hat state and fed. Net cost (amount of impact feel $199,99 i , v t' i AA, 1 i HOW'TOMMOPMENT-AND USE TMPACT FEES' SUCCESSMLY E. Allan Taylor, Jr. Reynolds, Shannon, Millar, Blinn, White 6 Cook 11 Fort Worth, TX fk n C 001, i r r M Awyi....~. n 10 14 r 1 W K' N d I J t` Sow TO bEVr,ap AND TMPR ° Va~.a~E6 i;' ~.LLY K, W I, Any discussion of the conoept of impact fees and how they are developed and used should commence with an overview I of why this new financing mechanism has achieved so much R importance in such a short period of time. rul understand the importance of impact fees it is necessary to place them in the context of the "sunbelt" growth explosion of the early 197008. prior to that time the state of Texas, along with many other southern states had a general history of slow but steady growth. Certain urban centers did exhibit rapid growth profiles but the majority of the cities and towns within Texas the south and southwest enjoyed moderate and predictable expansion in concomitant service needs, population, housing and Traditional growth communities located in the patterns shad outhwest edtohemootorpub is I infrastructure demands b utilizing traditional fine ping I E mechanisms. cities adopted multi-year ' programs, developed budgets for as anewtal improvement j facilities, funded them with publ c works 4 bond pr rams and general obligation or revenue oogg paid for the new facilities on a community y wide basis. Most, if not all, public works facilities were considered to be community assets meeting broad community needs and were financed through the use of public credit in the context of public bond programs. property owners and I system customers defrayed the costs of these ,owners and through the paymont of property taxes and revenue e th s erviaes cha e i provided. ~ s for In the early 1970's major economic -changes began to significantly shift the growth patterns and trends of the entire region. Foreign imports, an International embargo and capital o it facility severe economic slump throughout atheoonortheasternroUnited States. This resulted in increased l ao PPs a Y une wh ~ m olesale migration to areas of perceived econ ployecon and opportunity, The Sunbelt had arrived. omic Untold numbers of residents of northern and eastern communities relocated to the southwestern United States in search of new opportunity. Suddenly the cities of the southwestern United States were no longer attempting to assimilate growth at the old, moderate, traditional levels, The influx of new residents became a flood and in short order communities fouhd'their public works facilities incapable of keeping up with the demand of servicing new homes and h H 002 -1- r 170 ~nAtlYM 1 R-W,^ businesses. At much the same time a rising rate of inflation made it both more expensive and more difficult for t7 i governmental units to raise the funds needed for facility e ansion in the more traditional bond markets. Governmental units were forced to resort to dramatic tax increases and x, innovative use of revenue chvrgem and fees to acquire the funds necessary to support the change in growth patterns. Tax payers, confronted with a growing wave of taxes, charges, fees and assessments revolted. Proposition 13 swept California and served notice on the south and southwest that government would now face limitations on its ability to acquire revenue from existing residents and taxpayers, The challenge was to accomplish more with less. one of the most unfortunate dilemmas created by the crisis in financing public improvements was the head-on collision between fiscal constraints and a carefully nurtured met of citizen and consumer expectations. Governmental units in the south and southwest had in many oases been the beneficiaries of windfall level tax and revenue benefits as a by-product of mineral extraction activities and defense contract activities, oil and gas income dropped and with the I closeout of the United states involvement in the Vietnamese conflict defense income and opportunity seemed to slow. E: However, during the boom years communities in the south and southwestern United States had frequently promised their I citizens, directly or indirectly, public facilities and I services of a quantity and quality never before envisioned. Citizens and tax payers were convinced that they were entitled. to an unending string of beautiful modern new highways and roadways, water and waste water systems sufficient to meet every need and a whole cornucopia of supporting social services capable of correcting every social ill. The money had departed but the expectations remained. At this point in time communities throughout the sunbelt began explorin a variety of alternatives in 'their search to lied the funding source to allow the developwent , of the 1 public works facilities essential to meet the needs of new residents. As communities sought new sources of funds a variety of financing alternatives were explored. Initially, changes in the basic advalorem tax structure were considered, more aggressive subdivision facility standards and exaction requirements were imposed, enhanced user charges were levied on all revenue generating activities and more novel concepts such as tax increment financing, special assessment districts, public private agreements and capital share or I impact fees came to the fore. 11, r~~at Fees DefinedFees Defined Xmpact lees are those charges or fees levied by a i H 003 -z- ~ ~n+rrrrr.n < .,r I governmental unit against new development for this purpose of acquiring or recovering some or all of the oostl`of providing the public infrastructure facilities needed td support the new growth or development paying the fees, They are variously referred to as impact fees, capital recovery fees, f capital contributions, development share charges, municipal utilities system charges, access fees and a host of other P r: pseudonyms. The name is never important. 'they are defined { as a practical matter by their purpose and effect. Perhaps s the easiest way to fully understand the definition of an impact fee is to explore its philosophical underpinning. The { rational proceeds as follows. The existing community has sufficie:it physical infrastructure to most the needs of existing residents. Existin residents have paid for the existing public works system rough their tax dollars and through revenue oharges y for use of utility services. New residents have begun movie into the community. The existing systems will not handle the F additional demand placed upon `he system by the new growth. f III The community must now expand its existing public works E system solely for the purpose of meeting the demands created ` by new growth. New growth should be required to pay for t eso new facilities rather than existing residents who have already paid for the old system which is adequate to meet their needs. A fee system is devised which requires oaeh new unit of growth or development to pay its pro-rata share of r ! the cost of providing the public worker facilities necessary ( to support the new development. Any tee structure designed II to accomplish this specific purpose is an impact fee. i III. istorig Preaadent } Although the concept of impact fees in the south and southwest seems to be a relatively recent phenomenon the debut of impact fees in the legal system is far more historic. In 1957 the Supreme Court of the State of New Jersey initially confronted the impact fee issue in the case of Daniels v. Burrough_of -Point Plaasant, 129 A2d 265 (New } Jersey, 1957). The Burrough of Point Pleasant had imposed an impact fee based upon the square footaha of a home to be collected at the building permit level. Funds acquired under this program were to be used for the construction of new J school facilities in the oommunity. The Now Jersey Supreme Court held it to be an invalid tax and struck the ordinance. i A. The-Eastern Approach From 1957 until the mid 1970's impact fee disputes seemed to be resolved outside the courthouse. They ra- entered the courtroom in the mid 1970's in the state of f H 004 -3' i I PM Florida. Commenoing in 1973 and extending through 1983 courts in Florida grappled with the issue on a number of V occasions. The ones most frequently cited being Broward Country v. .7anis,.J2lIY!isiinl~, 311 8,W,2d 3'71 (Fla. App. 1973 Contractors and Builders Assoc+at on of pine_t•ias o+ y ~)L City of Dunedin, 312 8o, 2d 314, 356 go. 2d 846 (Fla. App, 1978), Hollywood. Inc. v. Broward o+nty, 431 Bo. 2d 606 (Fla. App. 1963), and guilders and Conactors Asrociat{~++ Palm Beach County v Board Q o ~n y omm es+one s o* Pa m Beach _County, 446 P 2d 140 (Fla, App, 1983). In the Janis f Development Company case the Court initially held the fees to be invalid as an unauthorized tax. But slowly the doctrine evolved and developed until the decisions in the Hollywood. Vic.. v. Broward County and the Builders and Contractors t Association of yalm Beach County cases validated the concept { of impact fees but established a generalized test consisting of three required findingst f i I (a) The construction of the new or expanded facility or service must be clearly necessary and must be the sole result \ of demands for services created by the now development which f. is required to pay the fee; (b) Fees imposed under the impact fee ordinance must reflect only the pro-rata. cost or fair share of costs attributable to the demands placed on the system by the now customer or user; f (o) All fees or funds collected under the impact fee system must be segregated and provisions must exist to insure f that they are used only for the purpose of providing the facilities for which they were assessed. Perhaps the most important distinction in the line of I Florida cases was the sooming resolution of the tax versus regulatory device Issue. All ordinances- which produce revenue for municipal governments tall generally within one of two broad categories based upon the purpose of the ordinance. If the purpose of the ordinance is solely to raise revenue then the assessment is a tax. Most states have both constitutional and legislative limitations on the ability of a community to impose taxes. Article 8 section 1 of the Texas Constitution requiring equal and uniform taxation within classes of taxpayers would very likely pose an insurmountable obstacle to any fee ordinance determined to be a tax. In Broward Coma v Oa_nis Development, oulpty the Florida Court initially determined that the impact fee system proposed for use by Broward County was a tax and interpreted the effect and validity of that tax in much the way we 3 anticipate a Texas Court would view a similar Texas proposal and held it to be invalid, 1 i H 005 ' f ~ I 1. al } IY 'VIA !A alq~ltfJll the yypy BY 1983 when Home guilders and ~91GILL~,tons of Palm f3e~nn Heel,. .a...y-~-~i_ Florida Judiciary had developed lineoi analysigc that the this type of fee ordinance into the other broad the impact category of municipal revenue legislation. It found that if tees are enacted and imposed specifically for the purp of regulating land development by insuring that the pro a ty will be provided with adequate facilities and services necessary to support the new development, the impact tae will be regarded as a regulation rather than a tax- The decision in the Palm Beach County case is incredibly important to those of us within the state of Texas as the hi h the Courts analysis and reasoning closel g points in the Texas Supreme Court in cd ..t t.,ey parallel those of Roo. C -~..b.@...43:ation v~ 680 S,W.2d 802 (Tex. 1984 most do_ awhich is the irect pron ~ nnouncement of the Texas Supreme Court on the L i€ impact fee issue, L o a the issue in dispute was a park exaction requirement imposed by the city through it subdivision regulation process. Previous rulings of Texas Courts of Appeal had invalidated park exaction requirements. In the Turtle Rock case the Supreme Court found that a mandatory park dedication j requirement could be justified as an exercise of the inherent police power of a city if it related to a legitimate governmental goal and was reasonable in its effect. The S' Court noted that in order to make such an exaction valid the city must demonstrate that the service or facilit was one that a general purpose unit of y provided governt r normally and necessarily be required to provide to support ` j the development. The facilities for which an exaction was l Imposed must be reasonably connected to demands generated by the development against which the exaction wag levied. Texas Supreme court did not The directness of the connection or the p be too roximitya of the ifaciithe to the new development but the tone and wording would infer a y requirement of a very direct and provable relationship. One of the more interesting aspects of the Turtle Rook case from a practitioners perspective was the direction the court took in identifying the basis of a city's power to levy such an exaction. The Court determined that the City of ~ College Station had the right to levy the exaction under its home rule power rather than under the subdivision enabling act of the State of Texas, The Court preoaived the home rule power conferred on Texas cities under the home rule charter to be closely analogous toy he inherent power of the state legislature. It is quite interesting to ( note that a comparable line of reasoning was followed by the I Filth Circuit in the case of BhaltonY o offs H ans I -8- i r 1 1 y rt. i 'J1NF/r ( 1 ~ I Station, 780 F2d 478 (8th Ciro 1986). The Courts reasoning in the Shelton vase appears somewhat byzantinian based upon a the actual facts of that dispute but the courts ultimate ri holding also picked up the broad grant of power in a home rule city being analogous to the inherent power of the state I. legislature. if these cases are further extended by the courts then we are left with a possibility that state enabling acts may not constitute limits on home rule powers. This would leave municipalities operating under home rule charters free to m ove far beyond the limitations of specific enabling acts in the land use and with the flexibility to adopt hovel rand Innovpiverapproaches to growth management. B. The Western &q1=Qa0 1 1 Although the current ruling of the Texas Supreme Court in the Turtle Rock Corporation case seems to follow the direct line of reauoning of the Florida courts deference must also be given to the line of cases coming from the western United States. The thrust and direction of the emerging impact fee law from the west is perhaps best illustrated in cases emerging from the state of Utah. The most frequently { cited case is ~anbarrv v. Scuth 1erdenrA+• (Utah, 1981) a decision of the Utah Supreme `Count ri iewin the validity of the method of establishing an impact fee j system. While the Court approved the conce of determined that they constituted r gulatorypadevices rather than taxes it overlayed its discussion of their { legality with an emphasis on the reasonability of their { application, The Court was obviously responding to allegations that commu systems that unfairlyfeand r unreasn abl to establish fee residents and businesses. The Court held thatpnowigrowthnor development should never be required to pay more than its fair share of the capital costs of new facilities in relation to the benefits that that development would receive from such facilities. In determining how to allocate the casts of providing facilities to meet the needs of new residents the Court provided cities with a list of seven factors which should be evaluated in establishing a fee systems 11 The cost of existing capital facilities. 20 Financing methods used to construct or fund existing capital facilities, 3. The relative extent to which new and existing developments have each contributed to the financing or construction of existing capital facilities, H 00 , 1 ~ -10 F IT j. i f r 4, The relative extent to which now and existing development will contribute in the future to the financing or N, new facilities and services, a. The extent to which new development is receive credit fox contributions already made or c r benefits conferred by entitled the development process. 6• Extraordinary costs in servicin g r' butpcomparablehdevelopm nt project®providing services to older 7• The time price differential of money for paid at different times during the development hsto amounts r community, ry of the p in the Bat,barry case the Court did not not out an exact formula for cities to utilize. It simply enumerated seven different factors which a city nust be able to des that it fully and reasonably considered in arriving at an 1. j impact fee system and fee allocation. castrate obviously attempting to provide communitiese wig court was ` to establish a standard of reasonableness in allocating costs between new and old development. Although the detailed listing Of valuative !actors found in the Banberry case was not utilized by the Texas supreme l ' Court in, its Turtle Rook corporation decision it should be noted that the Banberry case was cited by the Texas gu reme Court as one of the precedents for its decision. to the obvious conclusion that the court is familiar with pp the standards set forth in Banbar This leads holding on at least the pracedentiai baked a portilon of its and is aware of the need to value O that decision ~ allocation between the old and the now, a reasonable cost p The second truly significant case from the Utah courts is PIP W in 1983, Once again the subject Awes im376 pacttfes9but inathis instance the ohailonge addressed the need to insure that new residents and new growth are not required to different sets of facilities, pay for two growth was in essence told thatn hee existing Lafferty case new infrastructure was insufficient to meet their needs municipal j resolve this issue an impact fee structure was created to bTeo j assessed against now growth. Funds collected under this f program would then be used to build the new or expanded facilities necessary to meet the needs created by roAh. The legal dilemma presented by the case was host to handle the continued funding of old facilities, f i H 008 "7- f w The older portions of the city infrastruoture, alleged j, to be inadequate to meet the needs of new growth, had bean funded by public bond programs. All property in the city, r both new and old, was paying to retire the debt on the ` existing system by the payment of taxes and revenue charges. New residents were being subjected to a form of double taxation. In the Lafferty case the Utah Court determined F that new residents should not be required to pay a fee to buy into the capital value of existing services or to unilaterally pay for the construction of new facilities and services and then still be subjected to assessment to pay for some portion of the same capital value by being taxed to defray bonded indebtedness on the existing system. The would prevent, new residents d ns argues from o bearing a double rationale burden. E By late 1986 and early 1987 the legal community was seeing the development of significant lines of case law relative to the imposition of impact fees by municipalities. While very little of this activity had occurred within the Texas Courts the Turtle (took Corporation case made it abundantly clear that the Texas Judiciary was preparing to deal with the issue. The holding of the Texas Supreme Court in Turtle Rook showed a strong disposition to adopt the rationale of the Florida courts and interred a recognition of the review standards developing within the State of Utah. The large number of impact fee ordinances being adopted by general purpose units of government within the State of Texas coupled with a growing wave of opposition in the development { community virtually guaranteed that the Texas Judiciary would that bein stage establishing standards TexasnLethe near gislatureewith future, Senate On 336. n... e,++Aneinc o! Cat1ita. Ymerovements_by Iv. Political Subd visions As the 1987 session of the Texas Legislature drew imminent, various, players in the municipal development world I began to perceived need to seek a legislative solution to I the impact fee dilemma. Municipalities desperately desired to demonstrate some type of clear and definitive grant of authority to validate impact fee regulations. The silence of the Texas Statutes in this area lent an aura of uncertainty to the entire endeavor. The decision of the Texas supreme court to validate the College Station proposals on the basis of an inherent home rule grant of authority simply muddied the water. Where did it leave general law cities? How far could a home rule city go in establishing exaction regulations before they were successfully challenged? What would happen if federal constitutional challenges were raised on due process and equal protection arguments in the absence H 009 .8. y AJ R' • y W X',BHi:6...• ;TAM i 1 of any statutory guidance? r on the developer and builder side of the issue the pressure was even greater. Over 100 municipalities or I special purpose units of government had adopted or were F considering the immediate adoption of some type of impact fees The fees ranged in size from $200.00 to well over $3,000.00 per living unit. it seemed that almost every unit of government approached the creation of a fee structure in an entirely dissimilar manner. The Texas Supreme Court was obviously leaning in the direction of a general approval of the impact fee concept. If the Turtle Rock case truly meant that the right to impose such exactions was an inherent right of home rule government then impact fee development was just beginning. It was perceived that shortly impact fees would be assessed not only for hard public works facilities but for the whole array of municipal needs and services. All sides of the impact fee debate seemingly agreed that some type of legislative guidance was necessary to create a framework establishing some type of order and predictability in the impact fee arena. A number of pieces of legisiition were proposed by a variety of interest groups at the commencement of the 1987 legislative session. After an enormous amount of negotiation, discussion and compromise the Texas Legislature acted on Senate' Bill 336 entitled An Act Relating to the Financing of Capital Improvements by i Political Subdivisions. E . The Bill is an attempt to provide cradle to grave management of the entire Lapact fee issues It consists of twelve sections and makes a valiant attempt to cover the entire waterfront of substantive and procedural issues common to most impact fee disputes. It would be both unnecessary and inappropriate to attempt to restate all,of the provisions of the Bill when they can easily be found in the text of the statute itself. It may, however, be appropriate to review highlights of particular interest and importance in understanding the impact of senate Bill 336. a. Section 1 - Definitions in reviewing the text of the act it is important to note that a capital improvement for which a fee may be assessed is defined as water supply, treatment or distributions waste water collection and treatment; storm water drainage and flood controlt and roadway facilities under certain circumstances. The definition of facility expansion is keyed to the capital improvement definition thereby limiting the use of impact fees to these types of improvements. The definition of impact fee notes that it is a charged imposed or assessed against new development to H 010 _9.. i CX0.F1q NMTrN. "VIVA' ensrate revenue for funding or recouping the cost of capital ~ r improvements or facility expansions. An interesting side note in this definition is the relationship between capital Improvement and impact Fee. r i. y, An impact fee is the charge assessed relative to capital improvement or facility expansions. capital improvements and facility expansions are limited to the water, waste water, drainage and roadway issues. What if a "s fee is imposed to construct a municipal library facility? It isn't a water, waste water, drainage or roadway facility and therefore it does not constitute a capital improvement or a facility expansion since any fee imposed for the purpose of building a library building does not relate to one of those four areas it is by definition not a capital improvement or facility expansion related fee. If it does not relate to one of those two definitions it cannot be an impact fee. An r argument may well be made that fees imposed for items other C then water, waste water, drainage and roadways are not impact fees and are not subject to regulation under this act. It should also be noted that the definition of impact fee when coupled with the'definition of political subdivision limits the authority to impose impact fees to cities or towns as a general rule. This appears to be an effort to remove the majority of special purpose units of government such as water districts and school districts from the field of 'impact fee assessment. The definition of service area as contained in the act permits political subdivisions to extend the impact fees to areas within their corporate boundaries and/or the I extrmteiritorial jurisdiotion of the community as presently defined under Texas statutes. one significant limitation exists in the roadway facility related fees. These may be assessed only for roadway facilities of an arterial or collector category and only within the corporate limits of the city. The act extends further and provides that for roadway facilities the service area is limited to an area which shall not exceed a distance equal to the average trip length from the new development, but in no event more than three miles from the site against which the fee is assessed. Fees may only be assessed within the designated service area of the facility. This provisions will possibly require, political subdivisions to account for roadway tees in a completely separate and distinct manner from the systems used to handle fees relating to water, waste water and drainage facilities. b. Section 2 - Authorization ofSection 2 - Authori2ation~~T~~Fee This traction of the act clearly provides a legislative i H 01:x. + 1 I Y 1 1 PI. f'. t14 &k1N(Oa 4 I 1 u1^4:1n,I ' fl grant of authority allowing political subdivisions to impose { impaot fees if they Comply with the requirements of the act, It determines what types of costa, improvements and facilities may be paid or constructed with the proceeds of impact fees. It further specifically identifies costs or items which may not be covered by impact .fees, These generally fail into the repair, operation and maintenance of new or existing systems. subsection d at Section 2 specifically provides that the city will utilize qualified professional consultantu to prepare (1) an inventory of existing capital improvements (2) determine the total capacity and current usage of existing capital improvements will prepare a report describing improvements necessary and attributable to new growth or r, development (4) develop a table providing service level or use factors appropriate to each type of facility or service provided (B) determine the number of service units related to f now development or growth, and (6) a report projecting the demand for now service units solely related to new development. f in a fairly obvious restatement of the intent of the E entire act subsection d provides that an impact fee can never oxceed the amount determined by dividing the cost of new capital improvements attributable to now growth by the number of service units required by that now growth, The act provides that impact fe,m may generally be assessed' at the subdivision plat approval stage, when connootion is made to the water or waste water systems or R when building permits are issued, The one notable sxooption is a one year waiver of fees on lots within subdivisions that had boon approved prior to the imposition of an impact too ordinance by a political subdivision, The closing elements of section 2 provide that if a new development has been assessed an impact fee 'ahd has paid, the fee it shall be entitled to the permanent ust- and benefit of the services for which the fee was aid, 1:: the political subdivision currently has the capacity within its system to ~LJ meet the needs of that development it must do so immediatelyy. A political subdivision may assess a tee but not collect it until such time as plans to implement facility or service expansions are underway, If impact fees are actually collected the city must commence eonstruotion of necessary support facilities within two years and must complete the; project within five years or foam will be rebated to the then current property owner. H 012 Y11Y 1, ~WYtl/M ' q'.614':lNy ~R■y$ ='XxNN I C K' r o. Section 3 - Proceduren for Adoption of ngaot Fees ` This particular section of the act outlines an administrative procedure to most procedural due process ; requirements relating to the imposition of a fee, The governing body of the political subdivision is raguired to 4 schedule a public hearing to consider the land use z assumptions within the service area for which the fee will be imposed. The land use assumption package is essentially a t master p:.an or the proposed area of fee coverage, At the same time the governing body is required to appoint a r' citizens advisory committee to review the proposals. At least thirty (30) days before the hearing the political subdivision shall sand letter notice of the hearing by certified mail, to any person who has requested such notice E within the two years proceeding the date upon which the I publio hearing is set, in addition to the letter requirement the political subdivision shall publish notice of the hearing i once a week for three consecutive weeks, the first notice to appear at least thirty but not more than sixty days befoi~A j the date sat for the hearing. Publication trust be in a newspaper of gsneral circulation in each county in which the political subdivision lies, The statute contains type size requirements, provides that the notice cannot be in the classified section of the paper, and contains an outline of what must be stated in the published notice. k At the conclusion of the public hearing on land use assumptions the governing body shall vote to adopt or reject the land use assumptions within thirty days following the public hearing, if the land use assumptions are adopted by the governing body then the entire process must be repeated on a capital improvements plan containing the detailed program of construction and expenditure to provide the capital improvements or facilities expansions necessary to support new growth or development. A public hearing must be set, letter notice must be given to those individuals requesting individual notice and newspaper publication must occur, Five business days prior to the public hearing on the capital improvements plan the advisory committee appointed by the governing body must delivo-:4 its written comments on the proposed pie„ and impact fees, The governing body must approve or disapprove the adoption of the capital improvements plan and the imposition of the Impact foe within thirty days aftor the public hearing, No ordinance, order or resolution relating to the land use assumptions or capital improvements plan and imposition of an impact fee may be adopted as an emergency measure, 0143 -12- I kE: d• fiction 4 - flee of proms a~ This section collecte the adoption of ante impactt Pee as hall funds be deposited t in uage interest bearing account and shall be used only for the 40 purpose of providing capital improvements or facility expansions eaans within the service area for which the fee was A. Saot~on - Ra n~;' The act specifically provides that political subdivision shall refund any impact gee or portion thereof which is not _ expanded under the terms of the uct within ten years of the date that it was collected. Impact fees must also be r I refunded if they have been collected and if const I i the supporting capital Improvement Paaillty ® xpansion ruction on ~k s been commenced within two ears and pp has not years of the date of collection. All refunds underh thefact shall be made to the record owner of the Property at the time the refund is paid, f• B~tion a p1 ~M r n Da a / The specific terms of the act suildivision imposing an impact fee must updatetthe political land use asssumptions and the capital improvement plan at least once every three years, aseumptibne in the aepiaal oimmprovements plang is a virtually identical to the original adoption requirements to inoludo requirement from n the advise ligation along with the report business days prior to the public committee at least five subsection of the act seems to old ly ~envigisoa da icular hearing on the land use assumptions and the oapital joint improvements plan but in all other respects is a procedural repeat of the original adoption requirements, g• 8e°tion 7 - AdviAO o~ s'n order to insure that the reap, astate, building and j development oammunity is fully represented in decisions concerning the impact gee issue the act provides for the appointment of a capital improvements advisory committee to be compposed of not less than five members. ',pointed by the governing body of the politicaloSUbdttea is andd not less than forty percent of the advisory committee shall be reppresentatives of the real astate, development or building intatrias who are not employees 'ou officials of political subdivision or governmental entity, The act would seemingly permit the appointment or the planning and zoning commission of the municipality as the advisory committee it H 414 kin r rv..;.. a^rp, fir r n "MIX { at least one representative of the real estate, development, or building industry was appointed to serve as a regular or advisory member of the commission for impact Pee deliberations, This particular samewhai; of a provision of the act seems to create philosophical dilemma. Many munioippal I attorneys hove agreed that under the Texas Statues a member ' Of a planning commission is a public official. The majority of planning commissions in Texas have final approval authority on certain types of development proposals or platy. Final decision making authority elevates the m®mbere of-those commissions to the status of public official, . The tome of the act prohibit public officials of political subdivisions from being members of the designated advisory committee, The 4 provi.A on allowing the designation of the planning and zoning r commission as the advisory committee in certain oiroumetanoss 1r seemingly creates a conceptual conflict which may ultimately require resolution by the courts or legislature, I h. G~L.Lon 8 General Provisa j The most significant element of this section of the act is a penal provision app),locible to those cities that have impact fees in effect at the time Satiate Bill 336 becomes effective. Any city with an impact fee then in effect is entitled to retain the fee in place until the mandatory three f year update is required, The first year of retention is E without penalty. The second and third years'of retention are j a penalty zone which may subject municipalities to I( significant monetary damajes, xi' a subsequent evaluation determines that tho impact fee initially imposed by a city is F more than tan per-jent cheater that such a fee would be if oalculated under the strict terms of Senate Sill 336 then for the second and third years of its implementation the city i shad be liable fc'r twi'se the excess amount oolleotod under the unmodified erne atrliature together with reasonable attorneys fees and court Qe)')ta, This pairicuLir portion of the act also provides that no moratorium shall be placed on new development fLr the purpose necessary o d the velcple dept oof all or any r update the part mpact of fo~rq process iBedtiOn 9 ~ Annem'In This section of the Bill requires that a suit to contest an impact fee must be filed within ninety days from the date of adoption of the ordinance, order or resolution establishing the impact fee. This forcom parties disgruntled by the impact foci proposal to inetituto litigation in a timely manner or to lose their standing to seek judicial H 015 1 Os>.~:IYN'~ 9 AYO[.'Mwl ~ wr.wsan 1 9 intervention. This provision will undoubtedly encourage most communities to impose the impact fee at the building permit F level. This defers assessment and collection of the fee to a time far distant from the point in which the initial subdivision activity occurs. Municipalities will hope that by deferring assessment and cjollection no one will feel directly aggrieved enough by the new fee to institute litigation within the mandatory deac;lina. Many attorneys have serious doubts about the validity of this portion of the bill, It is conceptually difficult to cutoff someone's right to seek judicial relief with a flat ninety day bar when they may not at that time be residents of the community or aware of the existkanoe of the fee or its impact on theta, The appeals section of the bill also contains the statement that an impact fee shall. not be held invalid because the public notice requirements were not complied with if compliance was substantial and made in good faith. Ono* again the legislative deaft:ors have moved into dangerous and poorly charted country. Public notice requirements are the backbone of procedural due process constitutional challenges, What t'0e Legislature soaks to take away the state and federal courts may raimposo on a constitutional scrutiny basis. What constitutes substantial compliance? What const,ttutss good 3 faith? This portion of the appellate revisw section may have created more difficulty than it resolved. Section lo, 11 and 12 deal with regulations unique to oartain,counties or districts with responsibilities for storm water, drainage and flood control projects and identify certain 3 exempt transactions psauliar to districts created under Article 16 Section 59 of the Poxes Constitution. These are not provisions of general applicability to cities and are i of importance only to the very, very ii.nited number of i` entities whom they might effect. Although groups aligned on all sides of the impact fee issue hoped and in many caaas believed that the adoption of Senate Bill 926 would resolve the impact fee issue for Texas, constitutional questions remain, The legislature is, of cotraw, free to develop legislation aimed at rosoly ng social concerns confronting the state. Wo occasionally forget that thti Legislatures efforts are still subject to constitutional review by tho courts. The constitution of the United States and of the State of Texas establish the framework of powers, duties, responsibilities and authority of saoh of the disparate branohos of government. The constitution affords certain fundamental protections and establishes certain fundamental H 0143 { N 1 F. f> tMV,r Y}iq C'rpl t a rights which the legislature may not contravene. The y imposition of impact fees raises all of the warning flags of movement into the area of constitutional review. A developer t or property owner is being clearly required to give u some type of property interest, various classes or categories of property may be subject to different requirements and extensive notice and hearing requirements are mandated to assure procedural due process. l Why haven't the constitutional challenges already been r confronted? The long history of American jurisprudence is founded on the concept of least intervention is best. Courts t~ resolve contested issues on the narrowest ground possible to r ornate the smallest disruption in precedent. If a dispute may be resolved on statutory grounds the courts will not reach the constitutional issue in dispute. Impact fee ordinances are generally subject to { constitutional attack or question under three basic theoriest i (a) The ordinance may affect a violation of due process standards l , (b) The ordinance may affect a violation of equal protection requirements (o) The ordinance by its terms may effect a taking of r property without just compensation. D-ya PrQaegae C. hallenoes An ordinance is subject to a due process attack if -it imposes exaction requirements beyond the authority conferred by the police power of the state because in impact, it is arbitrary and capricious and it lacks a rational basis of formulation. Texas courts have long been willing to review development regulations to determine whether they were enacted in an arbitrary and capricious manner. While the arbitrary and capricious nature of a council action is evaluated on the basis of the record of the hearing on the ordinance a subjective element is always present! How fair, open minded, and objective were the decision makers in determining how to andle and allocate the impact tee requirements. Perhaps the list of factors for evaluation contained in the napbirry M. South Jordan city, AUM opinion provides the most meaningful guideline in allowing a city to protect itself from an arbitrary and capricious claim. Any city that can fully document that it held procedurally open hearing, where no conflicts of interest were present, and where all of the valuative factors found in the Sanberry decision were disouusad will be in an excellent positiO to respond to the arbitrary and capricious act allegations. Is I H 017 -16- M 'viAlK.lt~ 1 x J r c Until recently the failure to present a rational basis f attacks were subject to a great deal of debate within the ' Texas Courts, The Texas J'udioiary had not dealt directly with a rational basis argument in terms which could be related to development exactions. The Florida Courts had established a very firm system requiring that the governmental units show a direct tie between the need for the improvement anO the demands generated by new growth. % A9=1 builders 1nd-Q2a Ca UM. liforn a courts ' had taken a far more liberal view and required a far less direct connection between the need and the assessment. California courts did not require that a city prove that the demand for public improvements resulted directly from the property which was being required to pay the fee as long as I there was some typo of direct or primary benefit to the area assessed, aced Homa D ~j,],ders 464 P24 606 (Cal. 1971), The rational basis requ 1~omont was simply a bottom line fairness analysis, now reasonable is it to make this particular development bear these icuThe costs in terms of what it will receive as a benefit? Texas Supreme Court attempted to answer this ~1.etts_ station v Turt~ question in folleRook Coruora y---owed -r Ln t+on~ sugra, The Court e Florida elin of cases and required a direct showing of a relationship between the demand for now facilities and a specific development pro eot before a subdivision exaction to fund such a assessed, If the Turtle Rook case didr not t give Texas communities a full answer it certainly gave communities a clear sense of direction. Ecrual 2rotoW" gha,;"=M A constitutional challenge based upon violation of an equal protection requirement will center on whether the application of the ordinance produces a discriminatory result, Equal protection challenges almost inevitably fall into an attack on the rational basis of the regulation, Does it make sense or seem fair as applied, Is, one development or project being auked to bear a cost not logically attributable to that development, The _Ti~rt a Raa :0 AW= case has once again given us gu dance t~s to trio need for a direct tie between the benefit and the assessment for costs, Taking Without ,lust Comaenga ion ~i.►;~ it Taking of property without just compensation. In 1978 thu Texas Supreme Court clearly answered at least one element of the taking question in the case of City o A Ustin-y .17- 7 , 24:tlrwy µrrl.U Yi,1 1JSLrj~ w!u:m.5~ ~f ; app 1 Il 570 ,2d 3 ru led Chat tie, City of Austin hade%aken prothat 80 the perty without Cojst urt compensation by imposing development regulations designed to insure that the land could not be reasonable r development purposes, The decision used for clearly reflected that the just compensation clause of the constitution is a limit to a municipalities police powers. A general r government may certainly take property for purfpore unit of L The taking simply constitutes a form of condemnation and purposes, the L k governmental unit must pay Just compensation for the right or r r thepdoctrine in ad. The United States Supreme court endorsed in a 1980 decision, do all re , 447 U,S. 268 (1980) taking violate the Just compensation clause?which result in a To some degree the United States Supreme Court resolved this issue in the Aains v p~,,„ "We have long reoognixed that land uBUM se regulation does snot w ' affect a 'raking if it substantially advances legitimate state interests and does not deny an owner economically viable use r of his land bum I $0 1341an V eet~e s { 107 Supreme Court, 3141, 3146, zn .City cP Aua* ~ M T f Court clearly found that the regul3, the atio sad ptedeby thepcity f of Austin denied the owner of the tract in the economically viable use of his land, Once that question et® ation had been made the court ruled that the property taken and the governmental entity had an obligat onbeto Properly compensate the owner, f I While it is clearly Possible to engage in an improper taking under the current Texas case law it is also clearl yy possible to establish a system of subdivision exactions which can withstand "taking" scrutiny. in had Rook Cn no 0 AUM the City Of Co?] lqu had sotablished a park dedication or liegs stet bn tharsaf requirement which it wasPa~ont Of leer in lieu subdivision development process, g during the clearly rasulted in the taking of as prAlthough the regulation courts hold that it did not remove a1plr eco omically viable use of the property and the taking bore some rational relationship to the benefit conferred upon the proparty by the improvement, The College station case c.learl that regulatory takings can be upheld in Texas if they most the 89z clearly reflects A"VI olearly race vats' enefit proportional tto tihaaasee~emanoared r impacttfee indthe antialpated an term future will attack enter on oneuofn two approaches, An opponent will allege that the size of the exaction or foe within current market conditions results in a y H 01q r . I t: ~lmt~ r\"•J.14t YKit s,q .k Ml ^l L denial of any economically viable use of the property, The second approach will be an allegation that the property assessed does not receive a direct benefit proportional to the amount of the exaction or impact fee assessment, each of these attacks involve the development of specific facts unique to the fee structure created in each political sul+division. A clear understanding and recognition that j those are the principal points of attack coupled with an attempt to realistically understand the result of impact fee assessments will reduce a municipalities vulnerability, if the real purpose of an impact fee is growth control L aimed at no growth, the result is inevitable. The Texas courts will undoubtedly look to the precedent of City of r Austin v. _ iteactuave y and rule the regulation to be a L of a taking, due hf they will review the fee in the light capricious and a rationale basisndtest under willhe invalidate tand he enactment. ~ Vi$ summary impact fees are clearly a viable source of revenue for i E the financing of capital improvements and facility expansions f in the near term future. The enactment of senate Hill s36 coupled with the position of the Texas Supreme Court in College Statign v.-, Turtle R 1P little doubt that a ~ sugra leave properly drafted mpaat fee ordinance will withstand judicial scrutiny, Just as certainly the precedent of City of Aumt<_n y TOAMIS, AUgj:l! assures cities that an improperly drafted impact fee will be construed as a r taking and subject the municipality to liability, j, I In the preparation of an impact fee ordinance strict r attention must be paid to, complying with the requirements of Sonata Sill 336 in the preparation of the various component study elements necessary to validate the fee. when these have been successfully completed by competent, qualified consultants, the City must; insure that they are presented to the public in strict conformance with the procedural hearing and notice guidelines contained in Sonata. Hill 336, The adoption of Senate Bill 336 has certainly aided municipal {governments by providing unquestioned legislative authorization for the imposition of impacts fees, The trade- off was the establishment of significant substantive content 44 and procedural formality requirements in the preparation and adoption of an impact fee system. Any failure to fully and completely comply with the substantive and procedural requirements outlined in the Senate gill may well result in the invalidity of the entire impact foe structure, r H 020 -19- 6 roF e y CI?'Y Of DENTON DBNTONy 72U* re&o I M17MORANDUbi Date; July 141 1988 To: Executive Staff Joe Morris, Assistant City Attorney Dave Ham, Director of Water/Wastewater Utilities Jerry Clark, City Engineer Lee Allison, Senior Engineer Prom: Frank H, Robbins, Executive Director for Planning and Development Subject; Impact Pee Legislation (SB 336) I i Thf City is preparing to play an important role in the upcoming 1e94slation session. One of the important pieces of city related ' legislation will be amendment of the impact fee law (SB 330passed in 1987. Organizations and other cities are preparing to deal with this issue. As an example of this activity, representatives from TML will address proposed amendments at an upcoming seminar at the end of the month. As part of our legislative effort) it may be useful to discuss amendments that would be beneficial to Denton, if any, and to discuss the applicability of the law, Attached is a copy of the current law, which you might use to red line", An informal meeting to consolidate" your comments, if you are able to make them on this short notir_o has been scheduled at 2,40 p.m,, Monday,'July 25, 1988) in the planning/lingineering conference room. I would like to passthese comments on to TML and others at the meeting in San Antonio. w ran , o ns, "A'f~.`p' ab Attachment j e I' i<! i~ ~'s T7~XAS SENATE ` BILE, C33~i REGULATING THE FINANCING OF CAPITAL IMPROVEMENTS THOUGH THE USE QF "IMPACT FEES" SECTION 1, Definitions SECTION 24, Authorization For Impact 1=we►`s;, SECTION a, Procw•`iuVos For Adoption of Impact Foe SECTION 4, User Of Proceeds SUCTION 9, Refunds SECTION S, Plan Update SECTION 7, Advisory Committee StCT`ION S. General Provisions SECTION g, Appeals SECTION 108 Storm Waster, Drainage, and Flood Control SECTION 11. Oxompt Transactions SECTION 12, r"sffective Dot* I r rbr 101 io.Y/4 trxl b ,oroeldrd Il r orrv/rr by ?Ar I#Agr fr ryo, this !rx! la prrr/eYd Jrr ruhr I'erdlnp iad rAr lA3eACr dr4elo unaol bd hrld rrrpdaf/blr for lypa~r~411a1 rrrrri, or NrhErrprrhlloa bj !M rrrdrr 1011 Oily rrftoa, o1rldN! avies of !hr 1111 ua dr obbiwd Mpovo 14 $4101 of rrxle'opiwN olfltf ar lbrNO soar rftornor, j r . 1 1. ' IHIM1.... n.. _ . 1 nN ph f WWI 1/93W1~ {ptl2xvsry M Ifgr■4 a~awe 7.11: SENATE BILL 336 As Rassod and Signed by trio Governor AN ACT relating to financing of capital improvomentse by political subdivisions, t BE IT ENACTED BY THE LEarSLATURE OF THE STATE OF TEXASi E SECTION 1, OEP-1 NITIONS, In thin Actt (1) "Capital Improvements plan" means a plan required by this Act which identifies capital improvements uc facility expansions pursuant to which impact fees may be assessed, (2) "Capital improvement" 'means water supply, treatment;, and distribetion faoili.ties► wastewater collection and treatment faoilitism► storm water, drainage, and flood control faoilitteal whether or not locatod within the service area, orjMMdWAV with a life expeotancy of throe or more 9~a,'~~ierated by or on behal of a political subdivision, f j (3) "Facility expansion" means the expansion of the capacity of an existing facility which serves the same functions as an otherwise neoeseaary new capital improvement, in order that the existing fdoility may serve new development. "Facility expansion" does not include the repair, maintenance, modernization, or oxpansion of an existing facility to better serve existing davelopment, (4) (A) 01mpact fee" means a charge or assesement imponod by a politcal subdivision against new development in order to generate revenue for funding or recouping the ousts of capital improvsme¢►ts or facility expansions necessitated by and attributable to such new development; Aw used in this Act, tho-term -Im"ct fee" includes amortized ohbrges as well as,lunp-sua'dharges and includes capital recovery fees, oontriWtions in:.*id of construction, and any ether fee which tunaticmp ai*,,desoribed in this definition, (9);- Isp*Vfsen do not inoludes (i) dedication of land for public parks or payment in lieu thereof to serve park nerds( (ii) 4ral"'d ~Ti'Z or taosmentoo or aonstruotion or '!~'d e , •etsi s, si sidewalks, or ourbs when such dedications and vonetruotidn are required by valid ordinenee s and are necessitated by and attributable ~1- i . IM1ka M.li .4p. -rva: .N4r. . ,..,•.•..0• m' w.ou run a'hJSIV✓SNaMYM?hr,ViNAi' ' krIkINR,{y~ Y■ I YAW to the new developments or ' viii) lot or acreage fees to be placed in trust r funds for the purpose of reimbursing; developers for Qversizing or conmtructing water or sewer mains or lines= provided, however, no item which is included in the capital improvements plan shall be required to be constructed, except pursuant to Subdivision (2) of Subsection (H) of actlon 2 of this Act, and no owner shall be required to construct or dedicate facilities and pay impact fees for the same facilities, (3) "Land uea assumptione" includes a description of the service area and projections in land uses, densities, Intensities, and population therein over at least a 10-year f (0) "Xe" development" means the subdivision of land; -a the oonetruotion, rooonstruotion, rsdovelopment, conversion, structural alteration, relocation, or onlargetm nt of aur;" l structure= or any use or extension of the use of land{ any, { of which increases the number of service units, 3.: (7) "Political subdivision" rowans a city or torn, whether operating under general law or under special, or l, t~ ~ ome-rule charter, a district or authority created under Article 111, Section 52 or Article XV1, Section 159 of the f 'T'exas Constitution, or, for the purpoeoa set forth in Section 10 of this Act, certain counties described in c Section 10, jeF'r,+ means arterial or collector streets C boon designated on an nifiofally "adapted roadway plan ai.tho political subdivision, together 'f.: with all necessary appurtenances, as hw s s 44 (9) "Mervice' area" means the area within the corporate !i boundaries, or extraterritorial jurisdiction as defined by the Munioipal Annexation Act (Article 970a, Vernon's Texas „ Civil Statutes) of the political subdivision to be served by the capital improvements or faoili ex nrionr s in the capital improvements plan, peoified The service area, for the purposes o all or part of the land within the al t Cal subdivision of itortal jurisdiction limlt;rd to an raw political subdivision aft s 11-t1-1 A 11 1 pit V I ~Ir}WIrP9 ~V.OKY1 r I i + av e r W e v ce area aremkITm a 14,11, . ~serv a designed in the capital improvement plan. (10) "klervtoe unit" means a standardized measure of ' consumption, use, generatior, or discharge attributable to an individual unit of development oaloulektod in accordance s with generally accepted engineering or planning standards rs s for a particular category of capital improvements or a facility expansions. s SECTION 2, AUTHORIZATION OF IMPACT FEE, (A) Unless otherwise specifically authorized by estate law or this Act, no governmental entity or political subdivision shall enaot or impose an impact fee. Politioal subdivisions are authorized to enaot or impaoo impact feri on land within their corporate boundaries or extra- territorial jurisdiotion only by complying with this Acbr except imppact fees shall not be enacted or imposed in R extraterritorial jurisdiction for roadway facilities. N municipality may contract to provide capital improveme +rs except for roadway facilities, to an area outside of it corporate boundaries and extraterritorial jurisdiction and may charge an impart foe 'pursuant to the contract, but if an impact fee is charged therein, the municipality mist ocaply with this Act. (8) An impact fee may be imposed only to pay the carts of constructing capital im rovements or facility expansions, ` including and limited to the construction contract price, I surveying and engineering fees, land acquisitions costs IIII (including land purchases, court awards and costs, attorn'ey's fees, and expert witness teas), and the fees actually paid or contracted to be paid to an independent qualified engineer or financial consultant preparing or updat'tnke.thw n till improvements plan who is not as ompla~► seaw3`~tziV091this iticgl subdivision, Notwithstanding any other pfa'vi»ap Aot, the Edwards Underground Water t Aistriot or'A r*4r authority, which is authorized elsewhore by,.etatik,.l ,J1Qq o,.rge fees which function as impact toes as dstins4 714 A , may use impact toes to pay a staff engineer who pror res or updates a capital improvement* plan under this Ant, roJected interest charges and other finance coats may be inoluded in determining` the amount of impact Foos only If the impact tees are used for the payment of principal and interest on bands, notes, or other obligations issued by or on behalf of the ),olitical subdivision to r , i 4 NYM'tPJf fJ i ~N4{litpi ~I G t finance the capital improvements or facility expansions Identified in the capital improvements plan and are not used to reimburse bond funds expanded for faoilitIOO that are not identified in the capital improvements plan, a~- (C) Jmpact fees shall not bs adopted or used to pay for t, any of the following, (1) construction, acquisition, or expanfsian of public facilities or assets other than Capital improvements or facility expansions identified in the capital improvements plans (2) repair, operation, or maintenance of existing or new capital improvements or facility expansions= (3) upgrading, updating, expanding, or replacing axis+,ing capital improvements to serve existing development in order to meet stricter safety, efficienoy, environmental, or regulatory standardal (4) upgrading, updating, expanding, or replacing existing capital improvements to provide better service to { existing developments o (5) administrative and operating costs of the j political subdivision, except the Edwards Underground t or a river authority, which is authorized elmo*;b ra" by stdte law to charge fees which function ae impact feeMtirae-~` defined by this Act, may expand impact fees to pay its t administrative and operating Castes I (b) principal payments and interest or other finance i fsharges on bonds or other indebtedness, except do allowed by !1 Subsection (B) of this l'otio'n, (D) (1) The political subdivision shall use qualified professionals to prepare the capital improvements plan and to Calculate the imp4,ot fee, The capital improvements plan shall contain specific enumeratich of the folXowing „itebsr1 (a) a description of the existing capital improvements within the service area and the Costs to upgrade, update, improve, expand, or replace such imp,°pve- Monte tp$.neet e4gOing needs and usage and stricter safety, fflLio".6►' eavircomantal, or regulatory standards# which o sha liotnsed,toeprefor suohupraaeselonaleengineeringis+errvices In the eats' at Ttxae, s (b) asr4%i lysia of the total capacity, the level of ovrregt usage, and commitments for usage of capacity of the a xioting capital improvements, which shall be prepared by a qualified professional engineer licensed to prefaris such professional engineering services in the State of Texas (o) a description of all or the portions of tbs .4- i 1- I, k a 1 I I Sim <;apital improvements or facility expansions and their costs necessitated by and attributable to new development in the service arum based on the approved land use assumptions, which shall be prepared by a qualified professional engineer licensed to perform such professional engineering services in the r3tate of Texas) (d) a definitive table establishing the specific level or quantity of use, consumption, generation, or discharge of a service unit for each category of capital ty improvements or facility expansions and an equivalency or }6 conversion table establishing the ratio of a service unit to various types of land uses, including but not limited to residential, (ommarcial, and industrial) (e) the total number of projected service units necessitated by and attributable to new development within the service area based on approved land use assumptions and calculated in accordance with generally accepted ongineering,'!., y or planning criteria) (f) the projected demand for capital improvements or facility expansions required by now service units projected over a reasonable period of time, not to axcsodtl0' j years, : (2) The impact fee per service unit shall not exo*40 J the ardount determined by dividing the costs of the capita,) f improvements described in Paragraph (o) above of this sub- section by the total number of projeoted service units described in Paragraph (e) of this subsection, If the number of now service units projected over a reasonable period of time to less than the total number of new service units shown by the approved lmnd use assumptions at full deve- lopment of the snrviao area, the maximum impact foe per l service unit shall Igo calculated by dividing the costs of the portion al the capital improvomnts necessitated by qnd attributable. p pl,-oJootsd now service units described in 11 Paragraph '-this subsection by the pprojected new servico unit0 scribed In theft paragraph, The analysis required by p agraph (o) of this subseotion may be prepared on a.ayetomrw.dr,,,be,eis within the service area for each major category of'6e4pital improvement or facility expansion for the designated service area, (8)'(1) This subdivision applies only to iWaot foam j adopted and land platted prior to tbo offrotite date of this Act. Par land which ham been platted in agaardance with Chapter 231, Aotr of the 40th Legislature, goggular Session, ' 1027 (Article 974a,Vernon's Texas'Civil Statute*), or the subdivision or platting procedures of a politioal subdivision prior to the effective data of this Act, or any land on which now development occurs or is proposed without , f, i 1 41 vl 'WkanOl, ~ • I a)lattin the political Subdivision may amsess the impact fees at any time during the development approval building process and exco t as n Subsection E this section, may oollec~tpthefeess vat eeitherthetime of of recordation of the subdivision plat or connection to the political subdivision's water or sewer system or at the time x the political subdivision issues either the builditt or the certificate of occupancy, $ Permit ? (2) This subdivision applies to impact prior to the effective date of this Act and land platted d subsequent to the effeotive date of this Aot, Far new developsn®nt which is platt,_d in accordance with Chapter 831, AcIts of the 40th Legislature, Regular Session, 19 7 1 974a, Vernon 's Texas Civil Statues), or the subdiviasiontorle platting procedures of a political subdivision after the effective date of this Act, the political subdivision may. aASgsss the impact fees before or at the time of recordation JftaY 01100t the 9090 at either the and, except as provided in Subsection (H) of this section'; , the subdivision plat or connection tomthef recordation ot: subdivision's water or sewer or at the titmethe po a pol tt!1bdivision issues either the buildin tlit certificate of occupancy, g permit or the, (3) Thin subdivision aspplise only to ihi s adopted subsequent to the effective data at this Act, For new development which is platted in aooardanoe with Chapter r 231, Acts of the 40th Lagislaturo, Regular session, 1027 (Art.iole 974a, Vernon's Una* Civil Statues), or the subdivision or platting r division prior to the a adoptionuofsanfimpactifee,rino im act fees shall be collected on an building permit is issued within ronetlyeartsubsequent to thed date of adoption of the Impact fee. (0 This subdivision applies n in accordance with Chapter p31, Ants at the 40th Toxmis Civil Statues), orsthe,AlubdivIvioaaor plattieorrwod• f 1 ptaaedurwr>al e i g of as ispAest f ¢tlsal eubdivision subsequent to adoption d at aft poet eel **lob is adopted after the effective date Thal>a itical subdivision shell arlsee• the impact fires b4Kpr e,;or at the time of recordation of a sub- dl' labs (;0 plat 4ptb"s p pursuant to Chapter ,231, Acts of Ve* rion1 ,40 sp Texas 014t PO, Regular Session, 1927 (Article 014a 1 statues), or the subdivision or , Platting ordinance or procedures of any subdivision in the official rscorde of the county clerk of the county in which the tract It located and- ,ny abipp axe* tleot ar th• provided in Subasotion (H) of this *action, m fees at either the time the Political subdivision issues »6» I C i ji 4;. tk 1 (~C/AYl`,OI r'! either the building permit or the certificate of occupancy. s (5) Par land an which new development occurs or is proposed to occur without platting, the political aubdivizion may assess the impact fee at any time during the development and building prooeem and may colleot the fees at either the time of recordation of the subdivision plat or connection to the political subdivision's Water or sewer myttem or at the time the political subdivision issues either the building permit or the certificates of occupancy, (6) Assesement means a determination of the amount of JJ the impact fee in effect on the date or occurrence provided in this mubdivimian and is the maximum amount which can be charged per service unit of such development, No specific act by the political subdivision is required, (P) After amessoment of the impact fees attributable to the new development or execution of an agreement for pay"nt of impact fees, no additional *impaot fees or increases thereof shall be assessed against such tract for any reAeon, unless the number of service unite to be developed on such tract increases. In the event of'ths increase in the number• of service units, the impact fees to be imposed shall be R+ limited to the amount attributable to the additional ser i qe; units. I (O) A political subdivision is authorized to enter into ' an agroement with the owner of a tract at land for which the 1 plat has been recorded providing for the time and method of If paymottit of the impact fees, f f 3 (H) gxaspt for roadway facilities, impact fees may be assessed, but shall not be oolleoted, in areas where a sorvioee are not currently available unlessi (1) calleotiot► is made to pay for a capital improvement or facility expansion which has been Identified in the capital improvements plan and the political sub- division commits to, within two years, commence ocnstruotion, pursuant to,d ~m."rded and executed contracts or cams#,tmeatr~"'o 111,'iitis time covering substantially all at the work required!to`p~,pvids service, and have the service available withk* w reasonable period of time donaidering the, type of, oaptal' #rrovement or facility expansion to be constitnuo$edtK;bu#.44w no event longer than five yearej (2) the political subdivision agrees that the owner of A new development may construct or finance the capital' improvements or facility expansions and agrees that the castes incurred or funds advanced will be credited against the impact fees otherwise duo from the now development or agrees to reimburse the owner for such costs from impakot i r~r i ) ' y+M>LY.rwtq ,a.vsYVLLi.AW'ry/~ ti r n ~ l 9 44",21 '"~l j' fees paid from other new developments which will use much s; capital Improvements or facility expansions, which fees s shall be collected and reimbursed to the owner at the time k the other new development recordiv its plat orb (3) an owner voluntarily requests the political eubdiviaion to reserve capacity to serve future development, and the political subdivision and owner enter into a valid written agreement. (1) Any new development for which an impact fee has been paid shall be entitled to the permanent use and benefit of the services for which the fee was exacted and shall tie entitled to receive immediate service from any existing facilities with actual capacity to serve the now service units, subject to compliance with other valid regulations, (1) Political subdivisions are authorized to expend funds from any other lawful source to pay for all or e portion of the capital improvements or facility expansltinw to reduce the amount of impact fees. (K) Political subdivisions and other governmental entities are authorized to pay impact fees imposed pursuAnt-,~" to this Act. (1) Any construction of, contributions to, or dedications of off-eaite roadway facilities agreed to.or required by a political subdivision an a condition of ,r development approval shall be oredited against roadway facilities impact fees Otherwise dye from such developsentl SECTION 3, PROCEDURE$ FOR ADOPTION OK' I IMPACT FEE, (A) Bxospt as otherwise provided in this Aot, an impact fee as authorized by Section 2 of this Act shall be levied by a political subdivision only upon complying with the provimions eet forth in this section, (6).,A politicall subdivision intending to impose an impact fee shall adapt an order, ordinance, or resolution establishing a•; ublic hearing data to consider land us* &*suntione wit~ia the designated service area that will be used To develol,the capital improvements plan, (A) Not later than the day of adoption of such order, the governing baby of the political subdivision shall' appoint an advisory committee in accordance with Section 7 of this Act. W 8- ` 1. lM1 x~ ,Yyy~~yy.NVII . r ,i (D) On or before the date of the first publication of the nntiae, the political subdivision shall co the public iLs land use assumptions, the tike available si the projections, and a description of the general nature of the capital Improvements facilities which may be proposed, (g) The politic natice of the hears 8 subdivision shall provide public fi (1) At least 30 days before the hearing, the political subdivision shall sent a notice of the hearing by certified mail to any person who has given written notice by certified or registered mail to the city secretary or other designated official of the political subdivision requesting notice of such hearing within two years preceding the date of adoption of the resolution or order setting the public { hearing, (2) The ti suvion shall uish i the hear ing onceoa! weekl forbthreei consecutivebwooks oth a► of first notice to a ear days before the dates*attforathe hearing,toin one oramor0 newspapers with general oirculation in each county in w1Xiq the political subdivision lies, which is which is authorized slaswhororb a river aathorit~~ law charge fees which function as impact foie asadefinedtin 41 " Act may publish the required newspapor notice only in each county in which the sorVice area lies, The notice of public hearing shall not be in the part of the paper, in which legal notices and classified adn a than one-quarter a ® paper and shall not be smaller newspaper, and the headlinesannthe notioomustb i In `18~ 'q paint or larger type, s (3) The notice shall contain the to (a) a headline to read as folio"~owingi "IbTICH OMB PUBLIC HgAam 09 LAND 099 AM3 UXPTIONS TO POWIBLB ADOPTION OF IMPACT t+ggr WLATIW (b) the time, date, and location of the hearing$ (o) a statemsat that the purpose of the hearing is to donsider the I# lo + use assumptions that will be used to h 4 tiepltat lprov*mants plain pursuant to which an imhaat fAs,may iptpasedl (dy_,an-oamil Undo Y rst a area tof' ns IM4iob: tho~"land use assumptions map of the ssrvics applyl and a> a stiitement that any member of the public has the right to appear at the hearing and or against the land use assumptions, present evidence for (F) After the public hearing, the political subdivision shall determine whether to adopt or reject an ordinance, order, or resolution approving the ,and us* assumptions, i i iRg4W 1'~ 6 Y, dS; ♦ (0) The political dubdivlsion shall have 30 days from li the date of the public hearing within which to approve or disapprove such land use assumptions, (H) An ordinance, order, or resolution approving land use assumptions shall not be adopted as an emergency measure, (1) If the governing body adopts an ordinance, order, or resolution approving the land use assumptions, the political mubeLtvision shall provide for a capital improvements plan to be developed by qualified professionals using generally accepted engineering and planning practices in accordance with Subsection (D) of Section 2 of this Act, Q) Upon completion of the capital improvements plan, the governing body shall adopt an order or resolution setting a public hearing to discuss the adoption of the p1; and imposition of the impact fee, (K) A public hearing must be held b the , of the political subdivision to discus the pr posed g ordinance, order, or resolution adopting a capital improvements plan and imposing an impact fee. On or befbrrr~ the date of the first publication of the notice, the capital improvements plan shall be available to the public. j (W The political subdivision shall provide public € notice of the hearing, (1) At least 30 days before the hearing, the f political subdivision shall sent a notice of the hearing by certified mail to any person who has given written notice by I certified or registered mail to the city secretary or other designated official of the political subdivision requesting notice of such hearing within two years preceding the dots of adoption of the resolution or order setting the public hearing (2) The political subdivision shall publish notice of ' the heerin&once,a week for three consecutive weeks, the first notior_ to oppaar at least 30, but not more than 60 clays before the date set for the hearing, in ane or more newepao0re with Soneral circulation in each county in which the pollbioal subdivision lies, However, a river authorrit which to which y Is authorized elsewhere by-*tat* law to oharge fees which function as impact fees as defined in this Aot may publish the required news aper notice,only in each county in which the service area 3piss, hearing shall not be in the the notice ice of public part of the paper in whisk legal notices and classified ads appear and shall not be s"ller- F t .ALW# . is • uhan one-quarter page of a standard-size or tabloid-size newspaper, and the headline on the notice must be in 16- i point or larger type. (3) Tits notice shall contain the follawingi (a) a headline to read as followsi "NOTICE OF PUBLIC HEARING tlB ADOPTION OF IKPACT F+8813" (b) the time, date, and location of the hearing; (c) a statement that the purpose of the hearing is to noneider the adoption of an impact fee; (d) an easily understandable map of the service area on which the proposed fee will be levied (e) the amount of the proposed impact fee per service unit) and (f) a statement that any msmber of the public has the right to appear at the hearing and prevent evidence for or against the plan and proposed fee, (M) The advisory committee shall file its written ' comments an the proposed capital improvements plan and. k impact fees not less than five business days prior to they publio hearing. ' y. (N) The political subdivision shall approve or disapsoy the Adoption of the capital improvements plan and imposition of an impact fee within 30 days after the public hearing. I (0) An ordinance, order, or resolution approving the capital improvements plan and imposition of an impact fee I shall not be adopted as on emergency measure. SECTION 4, USK OF P ROCKERS , (A) The order$ ordinance or resolution levying an impact fee shell provide that all funds collected through the adoption of an impact fee shall be deposited in Interest- bearing aocounts clearly identifying the category of capital improvements or facility expansions within the service area for which the4.few:was adopted, Interest earned on impact fees shall be oofsbidered funds of the account on which it is sarnedaand shall be eubjeot to all restrictions placed on use of"~ mpsot-fsew.under the provisions of this Act. Expe.nddtures of,i0paot fee funds shall be grade ohly for the purpgsss for whiob the impact fee was imposed as /shown by the capital improvements plan and as authorized by this Act The-records of the accounts into which impact fees are deposited shall be open for public inspection and copying during ordinary business hours, ~11w e Q+6q~ 0 N YR'J011~ i ~l[(tIA F~ ~ (S) The governing body shall be responsible for supervising implementation of the capital improvements plan in a timely manner, i SECTION S. REFUNDS, (A) Upon the request of an owner of the property on 3 which an impact fee has been paid, the political subdivision t? shall refund the impact fees if existing facilities are available and service is denied,or the political subdivision has, after collecting the fee when service was not available, failed to commence construction within two years or earvice is not available within a reasonable period of time considering the type of capital improvements or facility expansion to be conetructed, but in no event later than five years from the date of payment pursuant to the provisions of Subdivision (1) of Subsection (H) of Sectiaq.i2 of this Aotr (H) Upon completion of the capital Improvements or J facility expansion* identified in the capital Improvemes#,i.:.- plan, the political subdivision shall recalculate the I fee using the actual costs of the capital improvements facility expansion, r If the impact fee calculated based os~°actual cost is less than the impact fee paid, the political subdivision shall refund the difference if the difference exceeds the impact fee paid by more than 10 percent, (C) The political subdivision shall refund ,iny impact fee or portion thereof which is not expended as authorized by this Act within 10 years from date of payment. i (b) Any refund shall bear intersect calculated from the data of collection to the date of rotund at the st,stutory rate as set forth in Article 1,03, Title ?Q# Revised i Statutes (Article 6084.1,03, Vernon's Texas civil statutee)j or its successor statute, ;r C8) A~'l refs A r; °ehall be made to the record owner of the propert , fat t1Nh ti47 the refund is pelidl praVldedo hpwsvrr, a if the-, Istpagt `!*Nau,w(+re paid by another political sub- divisioJg,)or govsromental amity, payment shall be made to such poli,tici ,bubdivision or governmental entity, (P) The owner of the ' ' property on which an impact fee be,• been paid or another political subdivision or.governmoretol entity which paid the impact fee shall have standing to sue for a refund under the provisions of this section. i f ' r i Uw+`Ori l K'V711, 89CTION B, PLAN UPDATE, (A) A political subdivision imposing an impact fee shall update the land use assumptions and capital improvements plan at least every three years, which three-year period shall commence from the date of the adoption of the capital improvements plan, (A) The political subdivision shall review and evaluate its current land use assumptions and shall oause an update of the capital improvements plan to be prepared in accordance with Section 8 of this Act. (C) The governing body of the political subdivision shall, within 40 days of receiving the update of the land use assumptions and the capital improvements plan, adopt an order getting a public hearing to discuss and to revieM4ths'. update and shall determine whether to amend the plan, { (b) A public hearing must be held by the governing body of the political subdivision to discuss.the proposed ordinance, order, or resolution amending land use assumptione, the capital improvements plan, or the inpaq fee. On or before the date of the first publication of'the•` notice, the land use asesumpLions and the capital improvements plan, including the amount of any proposed amended impact fee per service unit, shall be available to the public. (B) The political subdivision shall provide public notice of the hearing, (1) At least 30 days before the hearing, the political subdivision shall sent a notice of the hearing by certified mail to any person who has given written notice by cgrtlfied or registered mail to the city secretary or other designated official of the political subdivision requoeting notice of such hearing within two years preoedln the dens of adoption of.thA' resolution or order setting tie pubiio hearingr- - ta> 1`h#1 political subdivision shall publish notice of the heaping once e week for three consecutive weeks, the first notigq, to appear at least 30, but not more than 60 days•befor-o"Ch .date set for the hearing, in one or more newspapers with general circulation in saoh county in which the political subdivision lies. However, a river authority wh1oh is which is authorized elsewhere by state law 4o charge fees which function as impact fees as defined in this Act may publish the required newspaper notice only in each county in which the service area lies, The notioe of publio i ....}.....rrv .e:.u~r'..r ..nn.y..,,,. .w....us.. u.... era. m>ruw.w>..u~.ww..m.+q ..n ,r ....«.rr.:uve...nwswwrc.. • .•n W4larYMWyN%Ylw.1 1 ,i ri hearing shall not be in the part of the paper in which legal S notices and classified ads appear and shall not be smaller than one-quarter page of a standard-size or tabloid-size newspaper, and the headline an the notice must be in 18- point or larger type, (3) Th e notice shall contain the followings a) a line o rend as tloi "NpTICH f)A(PUBLIC9HHARI110t00 nNENDMENT1OPWIRPACT IHMr (b) the time, date, and lonation of the hearingl (o) a statement that.the purpose of the hearing is to consider the amendment of land use asseumptiotis and a oapital improvements plan and the imposition of an impact feel (d) an easily understandable description and map of the service area on which the update is being preparadi and (r) a statement that any member of the public has the right to appear at the hearing and present evidence for i or againnt the update, i (R) The advisory committee shall file its written comments on the proposed amendments to the land use assumptions,capital improvements plan and impact fee no I less than five business days prior to the public hearin I (0) The political subdivision shall approve or disaprove the amendment of the land use assumptions and the capital J improvements plan and modification of an impact fee within 30 days after the public hedging, `I E (H) An ordinance, order, or revolution approving the ! 1k amendment to the land us* assumptions, the capital improvemante'pltan and imposition of an impact fee shall not lie adopted as an emergency measure, I SECTION 7, ADVISORY COMMITTEE, (A) A oapitalkj mprovements advisory committee, composed of not lose that>✓~lft ve members, shall be appointod by a, majority-vote of".the governing body of the political subdivision. Not less than 40 percent of the membership of the advisory committee shall be representatives of the l*A% setatee development, or building industries who are, not employees or officals of a political subdivision or governmental entity. If the political subdivision has a planning and zoning oomm-lasion, the commission may act (,s the advisory octsnlittee, provided that the commission includes at loast one rspresentive of the real estate, development, or building industry who to not an employee or -14- i , S w g w ?MJJGK +1 , ~s i r offioal of a political subdivision or governmental entity, If no such representive is a member of the planning and zoning oommission, the commission may still act as the advisory committe if at least one such representive is y'! appointed by the political subdivision as an ad hoc voting member of the planning and zoning commission when it acts as the advisory committee, If the impact fee is to be applied a within the extraterritorial jurisdiction of the political subdivision, said membership shall include a representive from such area, advisory (g) The advisory capacity and is establ a ed to perfort® the following funotionsi (1) to advise and assist the political subdivision in adopting land use assumptionst (2) to review the capital improvements plan and fil'l' s" written commenter (3) to monitor and evaluate implementation of the , i F1 capital improvements plant (4) to file semi-annual reports with respect to t11,'. progress of the capital improvements plain and to report, the political subdivision any perceived inequitieel_ J1 implesdenting the plan or imposing the impact feet e.d (B) to advise the political subdivision of the need to update or revise the land use assumptions, ospital improvements plan, and impact fee, (C) The political subdivision shall make available to the advisory committee any professional reports with respect to developing and implementing the capital improvements plan. (D) The governing body of the political subdivision ehmll adopt procedural rules for the committee to follow in carrying out its duties, j SECTION S e GENIKRAL, PROVISIONS, (A)'lf the governing body of the political subdivision does not perform a duty imposed Under this Act within the prescribed time-period, a pardon who has paid an impaot foe or an.owner of land upon which an impaot fee has been paid ; shalt have the right to ppraesent a written request to the governing body of the political subdivision stating the nature of the unperformed duty and requesting that it be performed within 00 days at +'.m request, It the governing body of the political subdivision finds that the duty to required under this Acct and is late in being performed, it i 1 t j 6 i t OdOdOd .,Shall esaueo the duty to commence within 60 days of the request and continue until completion, (b) A record must be made of any public hearing provided for in this Act. Such record shall be maintained and be made available for public inspection by the political subdivision for at least 10 years after the hearing, (C) Any state or local restrictions that apply to the imposition of an impact fee in political subdivision where an impact fee is proposed will be cumulative with the restrictions in this Act, (D) An impact fee which is in place on the effective date of this Act must, within three years of said effective date, be replaced by an impact fee made pursuant to this Act( provided, however, any political subdivision having-an ~ impact fee which has not been, replaced pursuant to this<Ao t, within one year of the effective date of this Act shall be f liable to any party who, after the one-year period, pays an impact fee which exceeds the maximum permitted under Subsection (D) of Section 2 of this Act by more than 10 percent for an amount equal to two times the differenoe A,. between the maximum fee allowed and the actual fee impaheti, plus reasonable attorney's,fees and court costs, (g) This Act shall not be construed to prohibit, affect, or regulate any tax, fee, charge, or assessment which is specifically authorized by state law, ' I (P) No moratorium shall be placed on new development' for the purpose of awaiting the completion of all or any part of the process necessary to develop, adapt, or update the impact fee, 8lTC7'ICiN 9, APPALS, A pereon,,who has~eghaustsd all administrative remadiss E 3 within thA.po4itiosl subdivision and who is aggrieved by a t~...✓) final dooision is entitled to trial de nova under this Act. A suit to contest-an impact fee must be filed within 00 days from the date of adoption of the ordinance, order, or reeolption establishing the impact fse, Except for roadway facilities, a person who has paid an impact fee or an owner of property on which an impact fat has been paid shall be entitled to specific performance of the services by the political subdivision for which the fee was paid Nothing in this section shall require construction of a specitio j facility to provide such services. Any suit must be tiled in -18- 7L F ' 5N\iKill' 5'; the county in which the ma,}ar portion of the land the political subdivision iss lccatg shall be entitled to recover reasonable ettdrnefulalitigant court costs, An impact fee shall not be held inv,s Pees and the public notice requirements were not odmplied lit because camplianre was substantial and in goad faith, with if SECTION 1 O , STORM WATRR ~ DRAINAGE FLOOD CONTROL , , AND (A) Any county with a population of million, according to the most recent at least 2.2 which borders a county with a pop federal census, .2 million, and any district or auth,o of at least 2,2 XVI,Section 69, of the Texas ronstituticn e withiUnder county that is authorized to Auch i 3 and flood control facilities provide storm water, any such fe®s to provide storm water Is authorized to Im drains postis ipt impraveme',ts nenessar sirninage, and flood control I y to accommodate new development, The Suboeoti imPoasltlan of impaot foes an (A) of this section rgquirenrentan at Section 6, Is a authorized by xempt from the ' Section 8 of this 'Section 6 Aot , and Subsection <D) olf=. 1` proposes to increase thenless the politir~al subdin#s mpact fee, ion (C) Any political subdivision described of this section is authorized (A) in Subsection Contractually pledge or n h rwi sl► obligate all or pert to of the impact foss payment of prlnclpal and Interest an bands to the obligations issued or incurred , of oe, or other political subdivision and to they or on behalf of such i cont;raotual obligations, pay nt of any other (D) An impaot fee adopted by a political on reduced pursuant ifs to Subseotion (A) of this section subdivision <1) the not be otharwis aaatr otaesllal subdivision has pladgsd or foes Y i t eta to f g d a the 11 mess or Payment yment of prinotpal and interest of the impact obligations Is t on bonds, sued Political subdivisionl and by or an the bshetltat • (2) the" s9 or contract p litical subdivision agrees in such not to reduce such impact fees during the e torn of such bands, notes, or other contractual obligations, tsa SECTION i1, EXEMPT TRANSACTIONS (A) This Act doss not lapply to Impact fees, ohargosf, Y It 1 de -10 R. Y I T ~ al ~ fees, assessments, or contributions paid by or charged to a district created under Article XVI, Section 59, of the Texas (Jonivtitution to another district crenated under Article XVI, Section 59, of the Texas Constitution if both districts are required by law to obtain approval of their bonds by the Texas Water Commission. (B) This Act does not apply to impact fees, charges, fees asmos4sments, or contributions charged which are approved %y the Texas Water Commission, Any district created pursuant to Article XVI, Section 59, or Article III0 Section 1521 of the Texas Constitution, may petition the Texas Water Commission for approval of any such proposed fees. The oornminsion shall adopt rules for reviewing any such petition and may charge the petitioner fees which are adequate to i cover the cost of processing and considering the petition, } The rules shall require notice substantially the same as•. § that required herein for the adoption of impact fees and-' shall afford opportunity for all affected parties to i j participate i w; I( SECTION 12o EFFECTIVE DATE, The idportance of this legislation and the crowded conditions of the calendars in both houses create on emergency and an imperative public necessity that the constitutional rule ; requiring bills to be read an three consecutive days is each house be suspended, and thin rule is hereby suspended, and jpawsageisandtittato so ke effect and,bs in force from and 'after its r~ R i . ..:ar.v .n .,r....... . ..,n., .n w1t4FVI:Mr(y(/({' btR~ t i i 440 I. h'MMif~ / +Ntav+c~ly ~ o°°~aoaa~oo~ooo 00o 00000 ` o S yl S f p 1~ 00 Op0 ro e O net °daaan~n4ono°°~ ; DLNTON MUNICIPAL UTILITIES ' RX, (809) NEWN, nIUCToR REPORT ON I CAPITAL RECOVERY, Fk.' EE FEASIBILITY MAY 1987 CAMP DRESSER & MCKE.K iNG. FOR' WORTH ~11Nn~1 MOM~N~, reNnlNp, ~ i j` +NNny►MOeRf41NMb CDM IM? I 42 r~r 1. rr0lli / ~Jil~~w.r I„ ~.....{I.1 rr ll`r4P WIS.. T3! ,.Y T rv.J_nyc<n. rl. u .d. ' ru Miami CDM CAMP DRESSER & MDKEE INC, r, ( Thee NoMhpark eat enWM+lmentaf enQule►ro, scfenlnn. 8900 NOM I Cennal Exprew". suns 400 } p+ennen, 6 menepemw cauWUnts DaW Terse YOM ; j 214 WIA900 ~I May 26r 1987 I.a Mr. Robert 8. Nelson, P.E. EXeCUtive Director of Utilities 215 9. McKinney Street t~ Denton, TX 76201 Dear Mr. Nelsons , Camp Dresser & McKee inc. is pleased to submit our Report on Capital Recovery Fee Feasibilityy for the City of Denton, Utilities Department. This report ao(~pletes phase Y of the December .161 1986 agreement 1 between the City and CDM. This feasibility study includedfour major taskst o preliminary assessment of financial, planning and legal issueei o projection through 1998 of the capital Improvements program:. k ow Costs and debt service requirements ' o a series of workshops with the Capital recovery Fee Citizens Comimi ttee t and t '"I o development of recommendations regarding the feasibility of i i.o lementin a capital recovery fee for the water and waste- water utili ies. r phase ti, if authorized by the Denton City Council, would develop the details of a capital recovery fee system. 1 , eased on the findings of this feasibility study and the deliberations k, of the Committee, the following recommendations are madei K~ t ` 1) The Department should investigate the use of pro-rata agree- ments for oversize construction reimbursementsl 2) r area-specific groowth-rela edU mprovemental agree ments fo 3) A capital recovery fee appears feasible for application to the City's water and wastewater utility tee structural 4? The City should postpone phase it of this study pending rssol- ution of the proposed State legislation on this matter. i , r .....gyn...... . r:w,nYIMi.w.MW4+.✓Y.NUYFY:pW YMNIMIMhI4W,4.'vYrrvnr n. 4 I, CAMP ORE$SER & MoKEE INO, j } MMrr. oberttsNNelson, P.E.. ` Pogo 2, we are grateful for the cooperation received from the Cit staff y during the course of our work. We are especially grata to Tom garpool, Roland Laney and the other members of the Committee. They are to be commomended for their efforts. we appreciate this opportunity to be of service to the City and look forward to Phase 11. sincerely, ;..1 pMrIXWZR I, MOM INC. Hartman , Ph.D. , P.E. Ashok Varm, P.t. Pe Manager Vice President a Rglitl►Vtlg►q O r i l E i` Yt ts; fit" ' ~ I ti 1 f 4 t ' a._µ•MWnvA•.Y^.. N..ae . rrHUNI tN •uviaMAY!{Mw, N'n'. , . R P 1 I h . I 1 r { City of Denton I Department of Utilities f r t+i Report on Capital Recovery ; Pee Peasibility May 1987 1 Prepared Under the Direction of the Capital Recovery Pee Citizens committee r 1 by } CUP Dresser & McKee Inc. Fort Vorth, T$ i F + T( 1 wllaYrr I i 1. Capital Recovery Fee Citizens committee n Tom Harpool, Jr. (Chairman) Bennie Snider Bob Bland Jane Hopkins (City Council Member) Roland Laney '(Public Utilities Board, Chairman) Eduard Coomes (Public Utilities Board Member) Ann Houston Jack' Davis Robert Collier Marilyn Smith Richard Gore Ralph Flasher Evelyn Black Juanita Milam Brian Burke Doyle Chrisman 15 y Jack Delaporte 1. f r Charles Mulkey I Richard Salazar f r 1i 6.J F wrrurr. w i. 1 {i S TABLE OF CONTENTS Section Title Lie 1 Summary 1-1 " 2 Purpose of the Study 2-1 3 Capital Programs 3-1 s 4 Impact of Capital Programs on Rates 4-1 5 Options and Dollar Impacts 5-1 f 6 Other Considerations 6-1 7 Findings and Recommendations 7-1 I h APPSNPI } f A Methods of Establishing Capital Recovery Fees A-1 F E Legal Considerations .....,o H-1 C Pending Legislation H-1 : D Citizens Committee Meetingq C-1 i Ills r i ~ i': 1 ' . . u,. ,wuo:mN. MHay.R+r.uawwr...w„ I -10 rd r LIST OF TABLES Following I . _Pa eg Population & Service connections 2 Water System CIP , , , , , , , , , , , , , 2»3 3 Wastewater System CIP 4 4 3-5 Water System Proforma 4-i Wastewater System Proforma 6 Water System - Cost Of Service Factors 4-2 5-5 7 Wastewater System - Cost of Service Factors 5-6 ~ S Future Year Costa by Cate or s 1, LIST OF'MURES Approximate Service Area y 2-2 Water System Cost components 4-2 3 Wastewater System Cost Components ~.t 4-3 '.i i t i r : i 1 -10 WWI 4 P r++ I r, SECTiuN 1 - SUMMARY GENERAL N :i This report presents the results of Phase One of a two-part study examining the feasibility of capital recovery fees and their application to the rate structure of the City's Water and Wastewater Utilities. Phase I includeds o preliminary assessment of financial, budget, planning and legal ' issues) # o projection of capital improvements program, operating and 7 maintenance costs, debt service costs, and system usage data; j` o a series of workshops with the Capital Recovery Pee Citizens J Committee; and fF o submittal of a report covering findings and recommendations E relating to the feasibility of adopting a capital recovery fee, i l ffrHODS OF ANALYSIS ' Several methods were used to review the issues relating to a capital recovery fee program for the City of Denton. These included t I o Committee workshops y o Utilities Departmant studies j E o legal review through CDM subcontract o financial review and computer projections ~ O engineering and institutional review j o telephone survey of other Texas cities i 1-1 r E i f11 i'! 1 i' PINDIMS 1) The City of Denton's Water and Wastewater Utilities now Ave 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 y I approach. 2) In the Water Utility, 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 under existing rates 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 rq rate increases to approximately 9 percent in both 1987 and 1988. 3) In the Water Utility, capita). expense relating to future growth is expected to rise from approximately $0.47 per 1000 gallons to $0.56 between 1987 and 1988. This expense is projected to rise to $0.63 per 1000 gallons by 1993. Total expenses (capital Plus operating) for these years are $2.01, 2.76 and 2.73 per 1W gallons, respadtively. 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 I (capital lus operating) for these years are $9.89, $11.26 and I $11.96 per monthly residential bill, respectively. 5) From an equity standpoint, the Committee generally favored recovery of growth-related capital expense using d fee or some mechanism other than monthly service charges to all utility w' customers. 6) A capital recovery fee can shift the cost of growth-related capital improvements from all system users to those groups whoO n"ds are growth related and is an acceptable and equitable method of P restructuring the City's schedules of rates and charges for Water and Wastewater Utility services. 7) Under current law, there appears to be ample legal precedent in Texas and in other states to support a capital recovery fee .1 ordinance by the City of Denton. 8) A bill pending before the Texas Legislature may pre-empt the J ability of cities to enact capital recovery fee programs specifically designed to meat specialized needal the bill sets methodology and outlines extensive administrative procedures. i 1-2 k I` RECOMMENDATIONS t~ Based on previous work by the Utilities Department, deliberations by the Committee and the findings as cited herein, the following recommendations 3 are madet i 1) The Department should broaden use of pro-rata agreements to include reimbursements for oversize construction. This should encourage in-filling and development adjacent to existing service areas, improve cash flow) and defer reimbursement to a time when more customers are likely to be connected to the system. 2) The Department should investigate possible use of assessments or the expanded use of pro-rate agreements for certain area speoific growth-related capital improvekents. Current Subdivision and Land Development Regulations allow pro-rata methods for sewage lift stations. Rxtension of this method to other facilities should be - considered, 3) A capital recovery fee appears feasible for the City of Denton] however, the City should_postponn proceeding to Phase 11 of this study pending resolution of the bill pertaining to capital recovery fees currently before the Texas Legislature, The Capital Recovery Fee Citizens Committee proved to be invaluable in terms of input and discussion. Purthert the workshop process provided the opportunity for both education and the exchange of ideasi concerns and perceptions about capital recovery fees. While this repo: represents a product of the study, there is equal value in the process used to develop it. r< -I 1-3 WA"I 1 r ~r 1 L { ` ` SECTION 2 - PURPOSE BACKGROUND Fill ! Historically, most utilities set schedules of rates and charges by I estimating operating and capital costs, and dividing that total by the anticipated commodity totals (water, wastewater, electrical units) to obtain unit rates. These rates are then applied to each customer on the basis of quantities used. r'+ Under this method, each customer theoretically pays a proportionate share of all costs associated with building, operating, maint(Lining, and' expanding each utility, During periods of moderate growth, low inflation, i 1 and modest interest rates, this method is generally effective and E r equitable, During recent years, however, many cities have found that rapid or erratic growth characteristica,coupled with increasing construction coats, 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, have required a review of utility financing methods. These 'I 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 growth, From this process the Capital Recovery fee method has emerged. Vol L THE CITY OP DENTON it 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 cats structure. `~EE W r , 2„1 1 11., h f ` During 1986, the City again decided to investigate capital recovery fee methods and retained Camp Dresser 6 McKee Inc. (CDM) for that purpose. The r City of Denton and CDM entered into an agreement under which CDM, in f conjunction with the Capital Recovery Fee Citizens Committee, was to evaluate and make recommendations regarding capital recovery fees, This study was separated into two parts. 'Phase I includedt (1) a preliminary assessment of financial, budget, planning, legal, and ` institutional issuesp (2) projection through 1995 of the capital J improvements program, operating and maintenance costs, debt service costs, and system usage dated (3) a series of workshops with the Capital Recovery Poe Citizens Committee; and (4) submittal of a report covering findings and { recommentts,ions relating to the feasibility of a capital recovery fee. Phase II, 11 authorized by the Denton City Council, would develop the details of a capital recovery fee system. -1 This report on capital recovery teas presents the results of four settings with the Committee conducted by CDR) numerous consultations with she Utilities Department staff, and detailed analyses and investigations l ! performed by CDM. The study area is shown in Figure 1. Population and service connection data for that same area are shown in 'Cable 1, FINANCIAL REVIEV/COMPUTER PROJECTIONS Utilities Department data relovant to the feasibility of a capital recovery fee. program generally cover the ..five-year period 1987 through 1991 This information consists of the Capital Improvement Budgst,'the Operating Budget, and the Proforma Statement for each of the two utilities. These source documents were used to develop financial projections through 1995 0.1 and to allocate each capital improvement between existing and future customers, 2-2 f r s~ +.;y Fla Y CAF DEIV-roiV r I ! AF~PI CiX x MA'f i! eMRV T CE AREA 1 At ~ i t ~.1.• 1 r. 1. Iit r ~I y 1 y } + le,p ,,,555 , ~ , TI71 ' 1 ~ • 1 - 1 ' .Y Y.4 ~ ~ I + I u~ ~ • , I III Ifluru ~ it 1 •'r I~L X ~(.Llrr ll~l.' ~~~I/1 ! •!/1 I , . 11r 111 ~•.NER NW~ST` NORTH I ' ,r y I nsr ~ 1 ~•~tl l''`••L. I f'I~Fd.•..+.}}}TTT'+r1'i«'.rl , LEI II r 1i • +iT' - ' r 1.111 I Ih ((1I I~ ' 1.' ~ I 1. 0 ,.~6l 1, I~ilj r' :.~~''ll~'~~ilaPF'1 EAS~. lr.. .7 L~~ h.. O y ff n j ..{!1 ' f' /fff I I r I ll / II ' 11 1 ~ ~ f t.: • ~ .w' Y,r 4y,ir~ 4+ f~ f~Y r (l.. I' { S'i`,~, ) I .14.' I 1 rl, 1 ' I F ,r lot.1 Ii...•l'dI •'rJi• !t. I• r 'r.. ' L • I YII / 1 ff R ' . SI Y Y A h. M r rr ~)'~11.Y~ M Y , I Y t 1 ••R. I' SOUTHWESI UTH'EASr 1 ~ , • III .I.I.yIM % hll`Mrrl~ II L\yY YY.LY.MY • • , r' ' ♦M / 1• R 1 ~~i el.l. Lw.l .6.' i. r• 1 I ( ICI ~+/pp1 i Y F r• Y Y r Y. I . I n q.111 1 1 1 I 1 ) f.a 1, ,IS-•I ' ' )tt~l I r• ' N I'i hHAI / I LUf 1 ~ r I 7 1 YYY 1 , _ / •a r r F= I ©WRM.•... . a I SF4'JItF CONb'ttlf0u3 k .......................................f PERSONS Pik S AOPUtAIVOA CtIAl4AitVE PotAIS ANNUAL 0111ON3 SERVICE coh'Actlov p.1 POPULATION VAIER NAVEVAI(A WE8 VAStiWATIR RATIO VAStEVAM YAW VAStEVA)ER C13Y 0; SESVBCF SERVICE SERVICE StA41CI SIAME SERVICE SIAVICE SERVICE (CAR OWN AREA AREA AREA AACA Of . AOA AREA AAEA 1481 $0.060 $+.630 I9tloo 12) 13,306 •12.447 214 19 3.91 1982 51,053 Si,B:) .'•1,810 (1) 131119 13360 101 ,l31 4.09 3.9o I 1983 54i4SS d0,O1S 54,464121 141198 13,913 109 SO 4.23 3.90 1 1184 (61053 61,208 51,030111 15,433 14,805 1,231 M 4.10 3.90 1985 58,034 UI 66,400 61',290 I1) 16,613 !4,940 1,238 13 1.98 4.11 1986 61,4x0 49,564 d2,b24 11,611 IJI IS~64515) 938 745 3193 4.00 1") 1981 61,990 72,120 660343 18,304 431 16,420 151 889 183 3193 604 1988 ti,960 73,884 70,062 19,400,13) 171:49 (5) 900 821 3.91 4.01 1919 i9,930 79,440 13,781 20,200 131 17,9)9(5) Boo 690 3.91 4011 mo 11,?04 (1) 12.200 170500 (1) 21,000 13) {1,631(3) goo 712 3.91 4.13 1944 1l 410 86,220 00,274 21,800 13) 19,403 0) IN 141 3.96 614 1992 17,920 901240 11,040 21,138 14) 20,010 11338 601 4.00 4.13 1993 80,430 94,26o 83,9)0 241170.14) 20,611 11632 667 4.00 4.)S 1994 82,940 98,200 881510 25,24014) 21,343 I,o30 667 4.00 41111 1 1995 t%450 (1) 102(30) 41,130 (1) 24,230 (1) 224012 1,030 661 4.00 4.15 +f 11) trifle mo R)thnli, 'RaittKattr Collicliah Syltet "alter PISA', { ~ JVIy 19851 fig'- 1.1 I . (2) From ind Mch611, '44e1tra14► Coll4tlltA Syatte Muter 11114', I MY 1985, table 311 (3) Clty et 4m1oA, $-Yale CIP 07.91, Pile 10 10 CO.Y Willie bisei 0A1.9 Om ni par coAneet18n4 (5) Clty 04 01A,UO, Wilt tip 81111 Pago 18 It) Clly 01 0#61.0n 'lied Una An61y114 • 20101, Narth 1906, Table WII 1 11) City of OtAtto 'L1Ad Ulf AWY111 2010', 8atc1 1986, Tabla VII .:.Jf 1 . , i t~ il .Y 1 1 fi The DePartmentis standard roforma c p presentation of financial Information was modified so that the impact of potentika capital recovery fee revenues could be measured. Separate analyses were prepared for the water and wastewater systems, 11 These analyses were used toi r o Qanerate financial model data that considered annual population growth rates of two, three, and five percent= r- o Set revenues othat than capital recovery fees so that debt service coverage was maintained at exactly o Set revenues at a level that produced zero gain or loss in terms of cash flow while allowing the debt service coverage to fluctuate. These methods provided the ability to examine the theoretical financial r~ impact of capital recovery fees set at various levels. Each of the relevant tables is included in various sections of this report. .y t t..l j 2-5 ..•.r..\,. .r: r1i1J1M1aJ Y' !.\rl'. rr.i.....N.... i.. ..nr,JUM4N. r. -•.`r... ...................iaJ 1 1 , I WOW= i Wgcfri! SECTION 3 -CAPITAL PROGRAMS s r GENERAL Operation of utility systems require periodic capital investment in fixed assets such as storage capacity, pump stations, collection system, r} treatment capacity, etc, The need for investment is driven by three 1..I considerationst n 'f o Periodic replacement and renewal of existing facilities$ Y o Betterment of existing service levels; and o Expansion of facilities to accommodate increasing demand j Construction-related economies of scale generally dictate that expansion be 1 provided in large, occasional expenditures rather than smeller, incremental + purchases. Further, as prudent investors, municipalities will . ~ typically oversize new facilities, such that capacity, and thus services, are I i available in a timely manner as the community expands. As a rasult, communities may find capital service levels above (excess capacity) or i - below (inadequate capacity) desired standards. There is a dynamic t 4 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 system expansion. In most part, growth is associated with a general increase In demand and thus requirements for a proportional expansion of capital facilities. To a lesser degree, growth can also contribute to the need for a betterment in services and possibly accelerate the need to repair or replace facilities. j 3»1 m . RR ~ yF ~ JJJ fl Capital improvements planning is accomplished by the City of Denton!s s, Utilities Department through an annual process that continually looks t forward to the next fivdWyear period. Results of this work ned in a "Capital Improvements Plan" document, the most current of which prepared in June 1986 covering the as period 1987 through 1492, This s 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 narrativ number, e, and an identifying Data are presented for each utility (water, wastewater, and electric E analyzed in terms of effects on future user charges, debt service costs,~a debt to equity ratios, and cash flow Impacts. In addition, this type of information is presented in composite form to illustrate the needs and impact Of the Utilities Department as a whole. Review and Capital Improvement Plan takes place at the Public Utilities board, th each Planning and Zoning Cemmissionj the office of the M the f Council, aYor,and the City Y91 g~H. Uater system capital improvements $29,0 million over the five-year period. Ar$4.0omilliontupgrade of the ekiating water treatment plant plus a $9.3 million expansion of water treatmcZ facilities are the major cost components. These data are included herein as 'Cable 2. lop 3-2 1a1i1i4Y}R.4(Y UW~rvvc...^.. ..u.~,.pavyµ _ NN^° w„a a,,,,. V { I 1 r 1 Y 1 1 µ 1 1 L; r} f 1 1 w~+r lh eJIVJ• w.la w+. J. t w111 1w 4N 1. .,1 IJ. t I•E i 6 1~/ r 41 1/ W 4• ~n 'r I I I l W N ;Ir E 1 WAS r"1ish".''!~'~il"s"'s"!~r"IVY" I : E •1 r. 4 VAN . f1. LY ' ,111 1,! 1 '1 I' M 1 Y t: r; q p Ei E~ ,1 1 lx ;'3:. G1l~Y .r I L< I ,.I w w w ul1 n W w u• n• u n ~~({1 ~~(1 y1 u ro !{y~~~ ~ (w( yi 14~~ 1Ly~ lu r . Y 1 ; r.. 11I ryy(. W ~ I1ry1 I.. 'O 11 la Itl'.t rllf N K r'• ii ~ '1 .YJ'. ! ~ 1N' 1y" tlt ~ N 11.: '.1 II I l K 1•) w : • 1r• V• IK y YYw L ~~4 I, Y ii aV I{y '4 rV V VY 13i. t ± WI 11 ~1' 11 j K E~ Yp. y U I IYS y Ci 1`~ Ir YC VV ~N1 DS ! 1 Il '•f M YE y N I 1\I Y r• tK Itl \i.N. •1. M la t1 .tl ni W Itl 1( ry fl I >b' M• (i Y. .l ,sr'aw:AO '.E~"`ak'Iv wkly: Ia. pol u. rI n 17 k' n I +u r 1~ i. u`. n `a t ]I • JA • 4• . . N~ Y r 1"•. 111 ~ +~,1, lu I 1 . ry y\ w, 1 1 G \U V F t 1 Y 1} Z E i A w N V ~ 1 N( IWY . u 4~ . I M I. $ ~ w1 ~~~'Q luE~ ID i h0 4 1 Im owl ' • A. W Y Y W ~ 1'~ ~I t W Ii W M. 1 W W h. W 1 tl tl 1 a yl 9s1 ~t~,~r3a R I~.Id i" r:;;~~:E s•:~:~~.'~~s~.'r:~!c:s?cp.'i~i~~?:?s~'.IS:r'r:~:r:e?: s:r ss e: s:'rt........ss ~,ri I~ W . 1 W . . , A Y . 1141 tea...?'' 1 r: s: tl Law, Y 1• M . I~ w .I~ 1 IV ~y I.tl ' ~ ~w1.11.1~. ~y i3:'~ b ~.L~ i:4I. }1 Swl l + ' r l 7 1 ~1 w .l f G.1:3'.d~aw Ib;IC ~5\~ar1•b; E:Cii ~l.i ~ l1. fa•I ! t4 w kA. ig A I e I 1 N g ~ tl W ~ 1u W N y}7j.. 1p~ i1~, 1, 1 W 1 17 1 ' • F I N AI 44 P e N W NI k4 l~ N 1F W L ~ ,M twu+ N Mt N d1 c1 9 hl y !t1 e r $ U ~ Y ~S fi7 ilf i •...1 W a. • u Y. W o .r W W a o ...1 . . s. 1. .1 I. .1 .1 .1 . Y Y W VI L ~ 4 tl J A l:' Y 1 y W IY Yi vl•••~~~ W 19 1 WW { 1 1 W I♦ 1. I .'4 r.l r .n l'1~ ~'yat"~l ~ 3S ~sf N 1. lbl.pro:f: Ct ' ....IYYM1.vYYp YU.hh+.Y,...., ••••,.n,.\lGyJ141fM, 'r y , q ~~44 /.1 1_ el ryl '1' `I) CIS I. ~ pj $~#i/rS$1~►~Vmh#is~ I ~ ij~ 1 1 1 1 1 1 1 I 1 1 H ,U r 1 w 10 n n ~c ~ a 4' ~ K k:. y+ 1.= ' tb ~e Iyi. w 1 ~ fR Yl yt ~ ~ 1,• V ~ IW W iV ~ IV v L 1 1 ' ~ » t? Y fwc) w ~ ;,yl s¢ N 1• i tj I « e K r-N . ..:1 ~.t: ~ i.: iCi ~3 t~7 Ir ~ a 1• . ~ ~ ~ ~ r i I 10 Iy 11 I~ ~r. .TJ N O I ~ , • rf j ILOb l ~ ~ p ~ ~ ~ ~•'~~~r~r»»GS~,~4~~ Fa ~ ergs ~ lu ~ III ~ ~hl a.,......... v.rw'1A.u.au.µ iM .,lve+rr..., ,.....m ll{.~LY 1 '~M1 f A OW r. I VAST8p~ AT~OYS18 Wastewater system capital Improvements reflect a five-year total of about $10,9 million with renovation and exp:,nsion of the wastewater treatment plant the major item. Those data are included herein as Table 3, Discussion r From an equity viewpoint, capital expansion costs could be recovered from new development while ongoing fees and charges bupport system repair, n operations, replacement and maintenance txpenses, as ,cell as capital betterment costs resulting from improvements in existing service levels, This concept ensures that onl y 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, I ~ T i ables 2 and 3 have been expanded to indicate allocation for each capital improvement between existing and future u3er9. This alloaatioa is based on ( analyses performed by CDM and Department staff using Information I I in the Capital Improvements Budget document and various engineering nreports prepared for the Department, For the Water Utilit nearly Yr 63 percent, or $17,5 million are pro,jeatod as growth related projects over the period 1987 through 1991. For the Wastewater Utility, appr,~ximately 45 percent or $4,8 i million can be allocated to future i growth. I L) Li '»1 r I 4:.1`1. ANA 7 I , . y~ W p~~ M 10 IU V +l V y V IY Y V~ '~l `u E 'yn y V I~ I fNyr'i;(j~ ~j 1i I ,lj 1 1 1 I 1 1 I I 1 I 1 I ~ I r• I.~ N N 1st 1 +jl , W 41 ~ l In 1~1 N41, IS11 1/1) 1~1 VI N 1~1 In ~..1 E . 1. . •J W '4 Y 41n .i. Ll IJ i•. I 1 1 •1~ IF,GH V U 4• A . i I~ p G E Y W. I,L. !2.4 ugs P. p y t , .1tl~, In any 1.y~1 ~/I.~ 'kY I u ~ w{~ ~ ' g .L] ~ 1'. ~ 1" 1 W 1 11' iF w~ ^ ~ II, E 111 YI ~ 14 ~ I ~ 1f! 1'. E7 .r, 1~ y ~ °i u• 11, ISi :~'~.b~~~~yr~~,:~~;•n~~~ w;~ s! ~I 1• III Y ~ ~ « ' •.4 Ar I lye ~s I I In i'} .I ~ 4r 1 ~I' i f u le G y u 11 -4 P 1. I"i I } wl i l7 ° u rl ul II l r 1 - W-1 a H r Q 1 JiA.Jr I w l j to la 41 op 1 10 r4 r. II t N( ! I i In nI x r~ S~vjw i5 13i dyj2S 9 I M f w N ! Z~ 64 I~ ! r 44 ~ tl 1 ~ r Ix k:Ci€iti wr,w'v1 l s I ea 1 ~ r rw w a~ b W N N tl w. M tl ~'~i NN • J'. Ll '1 .D Ll U 9 • w .r . . u . !r r. 'n r ~ { ! n..• a .'r rr.o ~n~ j •I t ( ! I I cl pi' ! ~ Cl a S9 Lt 3 W 3c i.l bt w "I l~ to t ~ .y do I ~ ~ I ' ....-..,.,.....a....nl,....,......u,~luuauv.usavw.~.w.r.a.,..,,..,.. 'tAli w J~ 1 1 1 1 1 1 1 1 1 1 1 1 11 1 1 1 w 41 A) w ~yyr YI 1.'I Y 'M 4. IJ Y 9' N Y IJ w V M IA 61 N w i ' 1 Ytir W ,Y I Vw ,M V Y Ih ill g r'!, . ~~t ~ s~~.~ i t r' ~n'I'~1 L. 1Ln yti C' iG x ~J IC 5 x ~ ~ 1• ; any 1$. ~Hi ' In t5` iC ' -i 'r; 3' 1 iY r` n~ „1'lvY r:, b> a' }y g { j: lt, }}fj 41, y fR t~ 1 11 ~~,1 r p gy. Iry Cr i' Y sr m !.i 1 . S SJ w w u L w lS' tY L S 1 b. .J 7 g!. In " 1 1 F 11''. 1^~ Fnr 1ry W , » L r r S y I'~ P N ll 1~M 1.. ~ " ~ p ~ 1yy O 1 ra 1 ~y 1 H Y ~p (ry~ NI 4: .I 1VC.~' 1 ~ tltl1 yL WH O 'yytl ~ 1V VI 'I `V 6 ~ I prI IiNf « ;w;y~ ~ fU 'i YNMI N 1\l ~M, N I~ ~ U N VOI ~ p M. NDY r r O IV I^ b iI r .I r~1 l• 1'1 • •rl I 41 I A I I 4 ~ I h' b M U tr a r e a■ ! It! It'l 1 I r: 1 I a ~ a a lie 1 ~y~~ pl ~4 tf ~ Q a N 8 6 O I m I ~ it ~I yp~ I 44 I:i7r"kit.'i~Gl4-4~"~rkSi~ ~"f~t~~win 1 [•y, t ,7 9 6 jj SECTION 4 - IMPACT OF CAPITAL PROGRAM uN UTTLTTY RATES Voter and wastewater service rates are set so as to recover the expense of operating, maintaining and expanding the utility systems, It is possible to place these expenses into one of three categoriess 1 o Operation and _Maintenance. These costs include the ongoing, daily expenses for personnel, power, chemicals, routine maintenance, etc.; ._i o Capital expenditures relating to existing customers, These may r Include debt service or cash payments or the renewal/replacement of existing facilities, or to improve the level of service to existing system customers (betterment)) and 7 o Ca it l expenditures relating to_future customers, These expenditures nay no u e dolt sere 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 programs of the water and wastewater utilities,. In so doing, computer models of the financial proforma balance sheets for each operating utility 3 were developed. These models are based, in pert, on the recently completed Report qn Electric, Nater and Wastewater Rate StudX (Management Applications Consulting, Inc., December 1986), various water and wastewater service planning reports prepared for the City of Denton, and current capital improvements programs as prepared by the Utilities Department. iI { Revenue and expense projections through 1991 are based on the cited rate _w study. The models, however, have been adjusted to account for January 1987 j refinancing of outstanding bonds. The net result of this refinancing was to lower annual debt service requirements for both utility operations.. Beyond 1941, estimates are based on extrapolation of previous years, projections. Dater system proforma data are presented in Table ,4, with wastewater system proforma data in Table 9. 4-1 i "Awl 4 • 1 I ' r9~6~ g = L~BI~~ ~X~r~~J : ~'fi~ES~6tl8 .i~ tt 1.►~:IS>~L n ; £Y 13 Ff lY 11 Ff 11 FY It FY tO IY 41 1 FY 92 FY 0 £Y ti FY tS lj + ~ RFvfNUE114FFNSf 1141SIFIt4I18R 11) 121 12) 111 111 ISI 311 I 113 141 14) 141 I Nilet still (it) 3,452 31625 3108? 3,496 4,176 4,122 4,452 f 4,524 4,123 4,145 5,011 ktvfnu1/10001415 1.31 i.1S 1.92 2.11 2.41 230 2.421 2.63 240 mo 2.S) I. P.E9F4UE9 • Re114fn1141 2,350 3,227 3,695 51035 11236 $1701 5,916 1 60124 41126 61404 6,525 toulrt141 20ST 21011 1,215 4,394 41510 1,111 $,1101 3,129 $,414 S,S11 51611 Pool P.ptlf Ito Itt 411 310 31) 352 S111 317 401 429 449 War Nil 98 10) 111 161 161 11) Ito 1 202 21) 223 234 . , • I OPERA11Ai III' MJl3 4,215 I'vi, I'm 9,900 10,2t6 11,223 S1,02 1 12,042 121213 12.421 il,lt6 NOn•OPINUAl kfvtdvt 331 840 441 032 50 951 101 1 600 600 600 100 I 101A6 HAMM I,I13 11006 B,O1S 10,1)2 10,141 121160 121113 1 12,442 12,4S 13,221 13141S 9101011011 • lfr40nll lif lol 1,133 1,111 1 ,6IJ I'm 11112 1,115 11124 1 2,024 21121 21210 2,333 190111t 230 NI 213 2111 211 214 1111 $21 314 301 111 1`10lu4ti en pow 451 641 611 411 M 745 195 851 I 915 tll 1,433 1,012 ` RllAlmAct ISI 113 614 9I4 11043 4106 111121 1,231 1,2t1 11351 Ii421 I Pvth144E Witt? 70S 113 IS$ Ill 352 214 114 1 340 300 300 100 Sv0lsel Ili 220 231 its 419 414 4111 414 $21 546 $12 ` Insar4nlf ttr4 Wrill 10 24 31 Sol $95 630 UI I "I 131 174 IM i,- Adeln, felkslets 902 M 524 W1 $11 S12 1134 1 412 126 710 114 R4f Rd6els 9lfadls 0 0 0 11111 lill2 111!8 1.924 1 I'm 20000 2,000 2.004 1 101A7E)tINOIPIAt1 1,194 41r6 4,1aS r,61t T,a64 11!46 1,261 11,111 t1oY6 trs?i t,2lt I I•- Nit OISRANNO RE11tN011 qll 2,110 2.110 7,043 3,215 4.324 4,1)2 1 3,161 3,131 -1,051 )IN M11 119914E tOARAH MS lot) 211 1,24 1.31 1.13 1.21 1 1130 1131 MI 1,31 -.1 E4P1'A16 OtPER ROM•OPtA, ttP, I h6itll 11Pra4ll!IA(c 441 10P 1104 IV 391 64 )2t 1 100 400 400 40e I - 0061 hiovi16 lo 1.401 1,311 3,4t$ 2,416 10214 31111 I 3104 ?,932 24114 2,JOP 1 I Ot6Pr 11011148 lrOletl:l 13 0 0 0 0 0 0 1 10 It IP 10 E lid kit 14 )t 41 S4 51 56 511 if 10. 15 io Rttw do lAmiamt S37 }14 313 342 39 VI I20 I q0 120 440 464 lA6rti11 Id Idrlinl Gklil 0 101 111 1 32 4 115 116 IOfAI N0 •0 ERATIN011l, I,J1 1,131 214'4 3.344 SAP 4;100 3199 1 3,901 3,156 31154 11164 I . } 1 f01A1 0118, 101(4010, $111 $.t14 mss 71144 11,011 101943 111164 12.211 112,142 SY'162 11,266.1 Isom, I 01141 14111 lolls 11111 lr,1, 41414 bolt 1 .44131 1411r 1114 Mid J Rti GAIN 110151 134111 44t i:il 112111 411 1216 lisi 10 10 10 s0 1 till Eeit11000 9411 10,110 101311 t0.30 !0,611 401511 10,144 10,71S 1 101114 !01121 14.510 sO,SN 11) Achill • trafaris 41114 11 May lilt 06frt11dl trdpl 1111.141 1 1.4! 111111if1 Pra40111 hill It May 14, • 060llinP Iudlf 1914.1111 1 1 10) ElSlulte • lrofau Noti it APII ill! • 011oilot Iv0102 1t16.1111, Pip It JI ail 10! E111441A 1 4 J , 4 Lai } ~(y r f'1 B! !Y it Ff tt FY 1J FY it 1'1 tD lY tl I !r 4: tY 1S FY 11 FY IS R1RWt/ffPlrSf ttASJlFlt4llDa Itl ttl Itf 111 111 131 13} 1 111 lil N} 141 trtd AAAUiL tvHi1lr 11)10 174,103 1►7,TIS 141,111 01 4!t 215 :19 11 , 1 . ,1113 . ktt14Mt111 Cuttwe )lilt 152:212 Il1,7f1 161,141 116,119 IMM 190,{:0 Imm f 201,112 1141911 211,8 1 221,1-6 k1 Avl. WHO (1111AIt191At111 tv111111 11,17 II.ST It.3) 1211 12.11 11,14 1344 i 11.11 41:31 11.13 11.91 RE'If MJtI j AlI11M111118m 1,712 1,110 1,412 2,115 I'M 2;i, 1,141 1 1.124 2.4:1 2,SIS 2,170 tlut/llll ?m 2,1D1 21711 31491 30112 3,601 1,113 3,44! t 31111 3,5}1 I,032 I'm A41mit At$ 212 212 221 :A b0 110 111 1 292 304 Ni 129 f` IAtfller. tilt 1 10 :4 7S 12 21 7t 110. It II 12 "!Sir Yr last Id 21 23 :4 2 1 3. .3 31 I Id171 t/fAAllAI 9Esf~WfS 3,791 5,9:4 5.:11 51121 1,312 9111) 1,415 1 61375 ~hN1 1,431 T,NS ~•Atn•t1if111A1 twol 151 261 i' t:a 234 239 2F0 I Its 115 265 ..,.r j..ur. I u.. ' q' n 1a 11 10141EvEWEJ 3,337 I,E1B , 5,445 1;17 .913 f d Nd 7 1 1.; S 131 S dT ~ , 2 1,221.. 7,311 t 1101.40lil'AE1 E hf{0MI lurftrc If6 IIOJI 31117 1,101 2,131 I,llO 1,111 1 11112 1,103 21111. $1315 Ir6drtllt,t lt~a 116 141 111 111 Ill 112 111 1 211 211 237 231 !05 116 533 it) M 111 107 1 m 131 194 1 MO A41nlIA1AC► 231 Ill 211 219 IN M 31St 157 114 310 444 tuVln{,' if) 311 34f Ill 113 it; 1101 426 414 Ill 114 1610144(3 Wily 13 !2 if !S 27 !J IN f. 104 111 - 111 121 Ad61n. t1At1lr1 241 413 479 $21 99 1N 141 1 14S 711 1;1 101 s 101AL f110014AIS 1,133 21110 31021 )Ill$ - 1,110 3,III 1,11} I 116N 1,04 51311 Sj?h i Aft DPt. MPI HVII' it 31004 20131 2,511 2,120 2,751 2111 2,610 1 2,003 21121 11153 t,ll$ lilt Std9Itt NYVA9! 1 .S y 2,11 2.01 2111 1114 7.15 1.12 1,10 I 1,21 L13 1.13 I'll S CAPPAt i 01r iit . r .C Y PfR w, fI►Ild I/lydvtltnlt ISS 266 $93 511 $21 IIJ 91 I 37S 371 313 373, Of61510511 11412 11171 `11133 I,1lD 1+111 11674 2,1141 lilt? 1,311 I'm 11411 Older 1104611111 0 0 6 0 0 0 0 1 3 S S S Ud 0111 24 1$ 24 10 31 31 13 1 14 23 $I 11 Mum 04 TArllla6t 395 340 115 141 115 Sit 511 1 400 1:$ 4:0 8S 10244 AOA•OP1741191 d7f.Vti I,fU I,Ut 2,241 2 311 1.:43 I'm 2,355 I 2,411 2,571 I'm 2,.43 303 MAL 0011A. 1409-010, 111, '1" 1 • 1 " •.103 u 1,737 4,137 5,293 3,571 5,135 1,7:4 4,134 i 1,118 7,571 74121 6 was 19169 lstls soils 04114 Moil mli 1 asset sells seas tas.u 4M1 M74 QOft3 I, 111 fJf 244 141 414 1411 013 I 34011 11572 11037 0404 r• Cfll SlAvitt fit AC.r7A 11 1 " Atf10lr7fAl )ILLI l 1,14 3114 1,19 MS b32 • MI bit 1 3131 1.11 2,13 211) `r ~J 11) 00111 11i01en1 $4W 11 Irv till Olerdf.+1 Mitt 19261001 ~ j 121 41111111 Prsraru wil 12 Air 1916 • 0041tinl hip, 1101.113 t Y31 6414W 1 h4heli 11141 11 AIYII 1114 • Oolrtlof lVilit 101.1911 Pill It I fll tpA hullfl F 1 , 1 1 1 , 01 y RINI R 1 I As noted in Section 3, capital improvement programs were revie Department staff for the purpose of identif in wed with t Y 5 those improvements, or portions of improvements, that benefit either Customers existing customers or future . Through this process, it was possible to establish estimates of r future capital expenditures, targeted for each of these two groups, However, since the financtal models extend beyond the City's 3-year planning period, it was necessary to assume a level of future capitalapital expenditures beyond 1992. This was done by examining the levels of currently planned capital expenditures for each utility, projecting those expenditures into the future and adjusting them to account for large, infrequent expenditures for projects such as water treatment facilities, major treated water storage, and similar items, i Using these models and projected levels of water grid wastewater service demands, unit costs for water and wastewater service for test years 1988 {I and 1993 were established. Further, these costs were disaggregated into I ! three components to show the portion of the unit service cost associated with operations and maintenance (00), capital expense benefittin ex customers, and capital expense benefitting future cus s feting ~ tom servlc ers, The e se co unit ats . are presented in graph and table form in Pigures 2 and 3. In 1988► us shown in Piguse 2 i capital expense benefitting -i future customers is expected to be approximately 56 cents per 11000 gallons L of water sold, or about 20 percent of the total cost per 11000 gallons. By 19931 this capital expense can be expected to rise somewhat from 1988 estimates, while that capital expense benefitting existing customers will decrease. Unit costs for O&M are expected to remain stead 1993. Y from 1988 to Revenuas from the current rate structural when supplemented by ether projected sources of revenues (e, g, , 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 " noted that thie revenue shortfall was identified in the Department0s3987be I, 4-4 room* i r r, t. WATER SYSTEM CITY OF OENTON r 2.8 2.8- 2.4 I i 2.2 I p I.8 1.8 1.2 Cr a t 1 ~ 0.8 0.4 l4 I 1? r' 1697 1088 1043 1 r Calm Co CAP-EX 9TI1f ~117W CUSTOIICp4 CAP-FUTTJRE i COMPONENT 1987 1498 1993 YYYMY Y.YyM ~IYYY WYAY MIMi~.N ~ I~.. O&M $1139 $2,03 $2.0.2 CAP-EXISTING $0:15 $0017 $0.08 ~ CAP-PUTUR8 $0.47 $0156 $0.63 I TOTAL $2.01 $2.76 $2.73 i • 1 i WFa`tl"~F~ ~3Yt~`f'CiM CG!>W1'1' CC7tr1F~'C1N~N"i"~3 f W I ©URE 2 f 1 i I , II j CDa 1 0WMWYI64MM) FMhu E~ I I _ /iAW11MiiMMMIININIMI 1~1 I r•.aMa WV WV<gWVavNda~ v..• ......v «M 'J1NIlf'6'kV'~~i~♦`KM'R\T!"~K/SC'Nliir!.Mn.. ! t WASTEWATER SYSTEM 14 VY OF DENTON 13 12 11 ON, Q !d sa - a 7 t 4 N f W r 2 t . ~ 1087 1088 1003 ~ . assiceNrw. dusrou~as ~1 O&W © CAP-EX19TiNO OAP-FUNNE COMPONRNT 1987 1988 1993 05M $7,58 $8,08 $9.96 CAP»EXIBR'IN(3 $1.64 $2.31 $0636 ; Y. ! CAP-PUTURR' $0.67 $0.87 $1.64 TOTAL $9.89 $11.26 $11,96 WA>:' MWA-rMFct 99YIR-rMM . ' GE~f3T Cdh'1~t~IVFsh1"F'i3 ' Fw 3: MUREE Z5 u ; r CD~VI MMFM.ArfM~NM. N W W wuwt 1 ~M.M+alwMwx 1 { ' .4•~.w:.- .....~s..n ..~...~w. r..u...r.. .........i..t.xrr+.vn ax r~~...~.r.+~.....-• 1 1 , Jq E~ { budget and capital program, and is due primarily to the City's payments for participation in the Ray Roberts water project. These payments are scheduled to begin in 1988. The City is working with the City of Dallas and the Corps of Engineers to reschedule payments beginning in 1989. This deferral, along with other adjufitments to capital programming, is intended I to reduce the projected revenue shortfall to approximately 9 percent in 1988 and 9 percent in 1989. Vas_teweterUtility, while the overall unit cost of wastewater service for the residential customer is not expected to rise significantly between 1988 and 1993, there are major SnpFigue'ethree Capital Theset$hiftsharerelationships components of the bill. cted at 87 cants per expense attributed to meeting future demand is proda residential customer in 1988, or about 8 percent of the average monthly bill, Projections indicated that this expense can be expected to rise to I approximately 14 percent by 1993. Capital expense for the existing j l ~ k customer is projected to decrease from 20 percent of the monthly bill in 1988 to about 3 percent by 1993. ~ Revenues from the current rate structure are expected to generate about $11,75 per month per residential customer in 1988, This level of revenue seats projected expenses. Again, this was identified in the Department's i 1987 budget and capital program 9ummar Examination of revenue and expense projections for each utility ' indicate thatt o A revenue shortfall of 25 percent can be expected in the water utility in 1988 consistent with estimates contained in the 1987 ` budget and capital programt this shortfall is due primarily to payments for Ray Roberts scheduled to begin in 1988 the wast o Revenue bwithleatimatestprsented in tYa 1987ebudgetuandicapitalin consistent program, . 11 i IL' I 1r J 1 r4 i ~ 5 ~ I I r o The City of Denton's Water and pastewater Utilities are now financially sound. When combined with the Electric utility, this financial strength is increased. While future rate increases are 7 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 base to generate revenues sufficient to meet all expense obligations, including those I expensev associated with meeting future service demands, it may be prudent to consider alternative rlivenus 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 means of providing rate relief in the wastewater utility. 1 rl f i 14 1 I ~ ~ I i 1 I ir 1 10 1 kt fj:, 1 iY r ~ ,1 SECTION 5 - OPTIONS AND DOLLARS IMPACTS r PHILOSOPHY OF CAPITAL RECOVHRY The term "capital recovery fee" is generict different terminologies are used for the same 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 n capital recovery fee is used. The purpose of capital recovery fees is to recover the capital costs of expanding a utility system to servo new customers directly from those new customers. Imposing such charges results in a more equitable and economically efficient recovery of capi+;i costs than would occur if they were recovered solely through monthil, water and wastewater service charges. A rate structure is generally considered to be equitable when it requires each customer or class of customers to bear the costs which the utility f incurs on its behalf. While recovery of capital costs through the water or wastewater rates is commonly regardod as equitable, a close examination of i+ cost conditions may reveal that under this approach existing customers subsidize system growth and, therefore, new customers. r. Capacity to serve new customera must be made available from unused ",,,dcity j in existing facilities or by constructing new facilitien. When capacity is J available in existing facilities, which were oversized to accommodate growth, recovery of the associated costs solely through user charges fails to recognize the investment that existing customers have made on behalf of future customers. When additional facilities must be constructed for new J customers, recovery of this investment solely through the rates also fails to recognize the greater costs usually incurred as the sasult 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, w~ ~,3 r i here... .„.:.rx..ara.nwrw . ,.......m.rv 4 ..T 1 ~IAr!M p'~ARIi' '.i7J' r r Capital recovery fees are a tool for taking into account these cost differences and 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 wise use of the resources devoted to providing n service. To ensure that system expansion is economically efficient, new ri customers must be compelled to weigh the consequences of their decision to seek water aid wastewater service wF.ere it is not available. In contrast to including the costs of system expansion in the user charges, capital f recovery fees are a means of requiring new 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 7 the high priority associated with investments necessary to renew and replace existing facilities to meet the needs of existing customers, i Capital recovery fees are widely accepted and utilized throughout the ! ( nation, While there have been legal challenges from time to time concerning level and/or application of charges imposed by utilities, courts have generally upheld the underlying validity of capital recovery fees. j Several problems have been encountered concerning capital recovery fees. I ( These problems are found in many jurisdictions that impose these chargesi E the City of Denton is not ttiniqua in this regard. Simply stated, capital recovery fees are frequently not understood by customers. Misunderstanding is 'fostered by a lack of knowledge about the reason for the charge, the costa they are intended to recover, and the basis for their development. Such misunderstanding results in the perception that the charges are unnecessary, unfair or both. J Problems can generally be classified into four categoriesi (1) nomenclature{ (2) disparities in amounts of the chargesi (3) usage of collected feeal and, (4) potential for challenges, especially by E~ developers, ~ I ~w w f f 5-2 i r rip NafR4a r r J j it ,E As mentioned previoubly, a generic term for such charges is "capital recovery fees". Examples of other nomenclature used for the same types of i. charges arat o impact fees o system development charges o capacity charges o availability fees or service availability fees f o connection fees o hook-up fees o development fees There are undoubtedly other terminologies also used. Confusion can arise from thane nomenclatures, especially when terms such as "connection fees" E _ and "hook-up fees" are also used in some jurisdictions to refer to the charges for service line and meter installations. Varying levels of utility capital expansion fees are encountered in i - different jurisdictions. In a survey of these charges in Texas alone, f combined water and wastewater capital recovery charges were found to range f;.-om $200 to MOO per equivalent residential unit (ERU), This wide range indicates that the bases used in developing the charges probably vary from Jurisdiction to jurisdiction. Legal challenges to utility capital expansion fees, especial)y by developers, are not uncommon. A charge which is perceived as excessively high is frequently aufCicient in itself to trigger such challenges, GOALS In its basic form a capital recovery fee program is designed to accomplish two goalst (1) determine the costs associated with facilities that will provide capacity or service to future customers and (2) ensure that those t ' i E S-3 J r reu R ~N1 AI,Y/ i r+ I r., i costa are recovered from future customers, Some utilities use capital recovery fee programs to achieve additional goals which may includes o Financing all or a portion of capital facility costs on a cash basis r- through capital recovery fees. o Reducing or discontinuing the use of lrj,g-term debt instruments. o Control or redirection of growth to t.,hieve in-fill rather than peripheral or isolated development. However, there are a number of variations in the manner in which capital recovery programs may be structured to achieve all or a part of those goals. Both the current method as well as some of the alternative methods are described below. I ) CWTNT METHOD i - ~ Since the inception of its water and wastewater utility operations, the City of Denton has recovered capital expansion costs by including them in the rate schedules that apply to all users of the systems. This has had the effect of causing each generation of uses to pay for both the then existing capacity needed to serve them as well as the excess capacity f w required for future users. Because generational distinctions are blurred over time, the initial use of a separate schedule of capital recovery fees -j requires careful analysis to separate capital costs between existing and i future users. J CAPITAL -RECOVERY PEE k r Incremental Additions Hethod. Capital recovery foes are calculated under E J this method using the incremental coat of providing the next unit of capacity in the various components of the utility system. por water service, the capital recovery fee is the sum of the incremental unit costs J for water treatment, storage, and transmiasionj for wastewater service, treatment and interceptor coats. This method is the some as that used by 5-4 "Pal r 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, f n Calculations made by the City of Denton Department of Utilities during 1984 established approximate capital recovery fee levels. These calculations r, 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 ~ of $875.00 per single-family residence was determined, plus a separate wastewater system capital recovery fee of $950.00 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 fromi k „k o developer at the time of :slatting o builder/homeownci J o or user charges in the utility rates Although the fees determined in this way may now be somewhat outdated, they do provide a means of examining the impact of a valid concept and a III'' possible level capital recovery fee. The essential elements of the Department of Utilities work are shown on Tables 6 and 7. Component Addition This method looks at the cyclic rather than the incremental capital cost additions. Cycles may span periods of five to twenty years and are established in relation to the derailed 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 few years. Beyond that, most other improvements are related to extending the water transmission system. This represents a typical "cycle" of. - capital improvements - an expansion of treatment capacity followed by T . _ i w 1 r TABLE. 6 (later System - Cost of Service Factors (Sources City of Denton, Department of Utilities) t Water Use 150 sped Water Storage 55 gped Water Treatment Plant $ 1.50 gpcd Transmission $ .50 gpcd j Storage $ .75 gpcd 7 Water Treatment Plant 150 gallons per day per person 2.5 persons per household 375 gallons per day per household I 375 x $1.50 . $562.00 Say $575.00/house Water Transmission ry 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 Water. Storage 150 gallons per day per person 2.5 persons per household 375 gallons per day per household 375 x $0.75 . $103.13 Say $100.00/house TOTAL WATER SYT9H COSTS $875,00/house i 4 1 l; ma E ~ q 1 TABLE 7 Wastewater System - Cost of Service Factors (Gallons per Day per Person) (Sourest City of Denton, Department of utilities) it Wastewater Flow 125 gpcd Sewage Treatment Plant $2.00 Interceptors/Pump Stations gpcd Ir $1,00 gpcd Wastewater Treatment Plant 125 gallons per day per person 2i3 persons per household 312.5 gallons per day per household a 312.5 x $2.00 , $625,00 Say $625,00/house interceptors/Pump Stations ii 125 gallons per day per person a l 2.5 persons per household 312.5 gallons per day per household ~ 312.5 x $1.00 $312.50 Say S325.00/house XJ TOTAL WASTEWATER SYSTEM COSTS T~ $450.00/house f i i l ..i wmw..xu+w.wcbpyMWKwilYN. tilzy~r...,..; ~ FMS IVl,gl n I. extension of the transmission system, Hence, capital improvements accomplished during the cycle benefit new customers whose service will be supported by the expanded facilities, Assessments acd Pro-rata Cost SharinK, 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 II transmission mains fall into this category. The benefitting development, area, or cuwtomer group can be defined by location. Under these circumstances, recovery of capital costs through assessment to the r benefitting area may be possible, 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, Uhen this can be accomplished, the assessment or pro-rata cost sharing approach is a valuable method for capital recovery, f IIi I ~ 4 Discussion ^ Using 1988 as a specific example, water system capital costs that apply to future users represent $0.56 of every 11000 gallons sold. That element can I be further disaggregated to show that $0.27 is related to water treatment capital costs, $0.05 to storage, $0.05 to transmission and pumping stations, $0.02 to 0versixing,and $0.17 to other capital improvement costs, Thase data are presented in Table 8 for both the water and wastewater systems. i L« 5_8 ..••.•,•....+«.~«>r....n...«.+ar....,svr.a.ws:.aka.;44GLw;usei3PN:[uv........«_.,.,.,. s n r TABLE 8 a Future Year Costs by Category i ~ Water S21tem 1980 Costs 0&M $2.03 Cap-Existing $0,17 ( $0,27 Water Treatment ( $0,05 Storage Cap-Future $0.56 $0.05 Transmission/Pumping stations ( $0,02 Oversize ( $0.17 All Other i TOTALS $2.76 $ 0.36 i ■qrr+rr+Y..rr+r■r++r0+r+r+rrtlrra+N++rrgrrlbYr++r++rsr+r+rar■+++qr+rrr+r+rr++ " Water System 1988 costs I 0&M $8.08 Cap-Existing $2.31 i wl ( $0.32 5evage Treatment Cap-Puture $0.87 $0.05 Interceptor/Pumping Station ( $0.08 Oversize 1 ( $0.42 All Other TOTALS $11,26 $0.87 ~I i aru~as i ~I , I According to 1987 budget documents for the water and wastewater systems, the capital improvement program funding is projected to be provided as t ~ follows Funding Water Wastewater Source S stem System Bonds 80.3% 75 OX Revenues 9.7% 19.8% Aid-in-Construction 8.3% 2.6% Other 1.7X 2.6% Total 100.0% 100.0% i From the above table, it is clear that recovering bond-related costs (which are used in part to finance the major increments of facility expansion) _J 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. I f As an example, a water system capital recovery fee of approximately $879.00 per equivalent residential unit would generate approximately $785,000 for a projected 900 new connections. This translates into approximately 20 cents of new revenues per 1000 gallons of water that could be used to meet capital requirements of future growth. F Obviously, a higher capital recovery fee would have more impact. Other methods of calculation as outlined in Appendix At 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. ~a J 5-10 t 4j SQ4YNN 1 N I S I I j F I f These rate-related impacts, which would benefit existing customers, also r must be weighed against the impact of such fees on new housing costs. it 'there are differing points of view as to whom such fees are passed. The rj net impact may be passed to the owner of raw land in the form of a lower selling price. The cost also may be borne by the developer/ builder in n setting the price of his house against that of existing housing stock built i. before the fee was in place, Or, the cost may be passed on to the new home buyer. There is no way to know with any certainty which of these ►r viewpoints is correct, t I presuming that costs are passed on to the new home buyer, the effect could be to raise monthly house payments 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 homeowners, includi»g new ones, would derive benefit from the service rates resulting from implementation of the capital recovery fee. Par an average customer using 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. This is a simplified analysis, it assumes all fees are passed on to the new home buyer, which as noted above, they may not be. Secondly, the analysis assumes that capital recovery fee revenues would be used to retire indebtedness incurred by the Utilities Department. If, however# fee revenues are used to cash finance capital improvementa, 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. 5_11 ,T 6 1k *owl 3 1 I ~ . t ++a,wale 3 I g s The weighing of benefits to existing customers versus the impact on future customers is important. Considerable discussion by the Committee centered r on this issue, as well as the related one of impacts on future economic development in the Denton area. L^,{I I /"t + r j r Y' 1 i 'J 5-12 aa 1 , SECTION 6 - OTHOP CONSI VRATTONS i L&CAL CONSIDERATIONS Numerous utilities throughout the United States have successfully implemented capital recovery fee programs during the past twenty-five f years. Baeed on a survey (311 reque3ts, 90 responses) conducted by Texas A&H University during 1986, there are at least thirty-seven Texas cities' using some form of capital recovery fee program, the earliest dating from 1978. Two of the thirty-seven cities have encountered legal challenges. In one case the legal argument was based on the allegation that the particular program was structured as a taxing device, rather than as a means of associating program revenues with the capital expenditures i j required to meet demands caused by growth. In the other cage the legal issue was narrowly confineu to whether a capital recovery fee ,.)uld be applied to a school district (Lewisville School District vs. Ci_ ty of Flower Hound), There have been no appellate decisions in Texas on challenges to i capital recovery fee programs per se, There have been de0i410ns regarding other exactions similar to capital recovery fees in nature and intent, { Cases from Texas and other states are noted in Appendix B. v{ y = ' 576 opinion of the Supreme Court of Florida (Contractors and Builders Association of Pinellas Count et al, vs, City of Dunedin, Plorida, 329 So. 2nd 314) provides guidance for developing a capital recovery fee, DDgedin upheld the legal authority of a municipality in the State of Florida to impose capital recovery face on new users of public water and r wastewater systems. The court rejected the notion, advanced by opponents i of the fee in that came, that a capital recovery fee is an unconstitutional tax, The statutory authority of municipalities in Florida to establish ~i "Just and equitable rates or charges for water and wastewater systems" was viewed as authorizing the dMr;jition of such fees, The opinion further provides specific guide,ice for establishing capital expansion fees, ~.i 6-1 i The guidance found in Dunedin can be expressed in terms of the fallowing four rules, each of which should be met to ensure the legality of a capital expansion fee structures o The fee actually imposed may not exceed the ro rata share of the costs of expansion. o The costs recovered by the fee must be reasonably anticipated costs of expansion. r, o Expansion must actually be required to serve now users. ' o The funds collected may be used only to pay costs of expansion. I r 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. 6 aril Yy 1 Ys r;, C From the legal perspective there are four primary elements that should be 1 ' included in the enabling ordinance. 1, The ur ose of an ce ital recover fee ro ram should be This can be in the form those capital facilities oneeded rtoYprovide service forrfuturen to i r, customers] by naming the costs that are not to be included such as j renewal, replacement, or renovations or both, kr' 26 Usa of tha revenues received from a capital recover fee program '`"tt ~ sou a care u y~~ne~, Revenues, and the interest they may earn, should he rastriotod so i c: that they cannot be used for purposes other than construction of i capital facilities to serve future customers, K 3, The accauntin rocedures and controls associated wit he c its racover~ ree~ragram a ou e e Haste i flti ` The legal purpose served is to provide a demonstration that"the funds are utilized for the intended purposes. arl i Yip Y A t c t, x ~y A as ' i j } 1+ ' 4. A11 special considerations, exceptions and restrictions should be spells out, n 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 onabling legislation, Examples include new service provided to other governmental ,jurisdictions, overlapping service L' areas, and facilities required to treat toxic wastes generated by new industries. v In addition, to the four elements noted above, there are legal, r~ administrative, and practical reasons for preparing a carefully worded definition of "Capital Recovery Fee." The following working definition, was ` presented to the Committees i j "A _Ca iital Recover Fee is assessed to property owners or deve opI- ere or t a purpose of recovering all or a portion of costs attributable to water and/or wastewater utility system expansion necessitated by now development. a The .Capital Qecovery Fee is used to pay the cost of expanding o g st`e -water and wastewater facilities. These j facilities include water treatment and/or wastewater treatment plants, off-site water transmission dines, overhead water storage facilities, water pumping stations, * y, off-site sever outfall lines, sewer lift stations, and r, the oversiziog of on-site and off- sito water and sewer lines. i. ` Costs for replacement, renewal, upgrading, and maintenance f 1'~ of existing facilities are not available for use of + Cpp~tal Recovery Fee revenues, r Capital Recovery Fees shall be maintained in accounts r se Grata rom a ot`fcer Utility Department fee and revenue accounts, and may be expanded only for purposes relating to the costs of facilities required to provide service to new development, r t Interest earned on Capital Recovery Fee revenues will be maintained in accounts separate y from all other fees and r+. revenue accounts, Such interest earned will be expanded only for purposes relating to the costs of facilities required to provide service to new development. aO, The Ca_ pital Recover Fee will be imposed throughout the service aeoA o t e vater an in Figure 1. d wastewater system as defined ? 54 6-3 u ~i 4 g 1 UUtz' I2 'fir .4:4.1'... r I • 1111 i I r i r. EXPERIENCE OP OTHERS At the request of the Committee, an informal telephone survey of some of the Texas cities that are utilizing a capital recovery fee program was L: f conducted. Results of the survey suggest the followings o Impact on economic growth was a concern in each case. However, only one respondent felt that growth had been negatively impacted, five could not determine any impact, and one speculated that the program ..e had positive impacts. (This was the result of city expenditure of collected fees to provide a well supplying water to a new s development as well as increasing the city0a overall supply), s i o Host of the communities indicated that their programs were successful, One suggested that theirs was unsuccessful only because !r i litigation had been filed against the city, r o No one cited "rate relief" as a result of having implemented the fee n program, However, the use of fee revenues to construct capital improvements infers a deferral of rate increases. {fit ~ I Several of the communities noted that thorough engineering analysis is an important step in setting the fee at an appropriate level and in justifying V it to the public and interest groups. If they had it to do Over, a more -f "professional" job would have been done, BNQINEBRINO CONSID2RATtON$ the City's Capital Improvement Program (CIP) was examined from several points of view. Pirstl there are sufficient engineering analyses (performed by other consultants to the City of Denton) to support the need tY+~ for the major capital improvements listed in the'CIP document. Second, the program is presented in enough detail so that rational allocations of .k 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 .Q, calculation of various realistic ranges of passible capital recovery fees, J1} r 71 6-4 l ~N4 i r J 5+.11.. 2 GGG PENDING LEGISLATION f During the course of this phase of study, the Committee was apprised of a ' bill pertaining to capital recovery fees pending before the current session I '1 of the Texas Legislature. This bill, in it current form, specifies the _ methodology to be used in determining the level of a capital recovery fee= sets certain administrative procedures to be used in the setting, 6 collection and refunding of such fees; and provides for an advisory committee to oversee the planning used to support the fee as well as the v use of the collected revenues. This is the third version of the bill, is the result of compromise between r!~., ! the Rome Builders Association and the Texas Municipal League, and is likely to be adopted. As of this writing, however, the bill is pending, x' ...E Yhile the proposed legislation does provide guidance as to method and r 1 program requirements, those requirements must be veighad carefully. A full reading and understanding of the policy and administrative implications of s, the bill should be developed by the City. A copy of the most recent version of the bill is included as Appendix C. qi tr , .t 4 6 rwhof.• q P SECTION 7 - FINDINGS AND R8COHNSN04TIONS FINDINGS 1) The City of Denton's Water and Wastewater Utilities now are financiallyy 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 Ray Roberts Project are scheduled to begin in 1988 and are a primary cause of a projected 25 percent revenue shortfall in 1988. r This problem, however, was anticipated and the City is working with the City of Dallas and the Corps of Engineers to defer payments t until 1989, This effort, combined with other adjustments in capital programming, could limit necessary rate increases to r approximately 9 percent in both 1987 and 1988. 3) In the Water Utility, capital expense relating to future growth is .xpected to rise from approximately $0.47 per 1000 gallons to $0.56 between 1987 and 1988, This expense is projected to rise to 1 $0.63 per 1000 gallons by 1993. Total expenses (capital plus operating) for these years are $2.01, 2.76 and 2.73 per 19F i gallons, respectively. 4) In the Wastewater Utility, capital expense relating to future 4 J, growth is expected to rise from approximately $0,67 per monthly residential bill to $0.87 between 1987 and 1988. This expense is J 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, _ 5) From 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 customers.. t,, L I f 6) A capital recovery fee can shift the coat 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 r, restructuring the City's schedules of rates and charges for Stater 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 of x Denton, k ~ y~lh fr I IN,, } i •,t7-1 4 x iL i ill uF~a ~ r S I 6 8) A bill pending before the Texas legislature may pre-empt the ability of cities to enact capital recovery fee programs specifically designed to meet specialized needs; the bill sets -methodology and outlines extensive administrative procedures, r Recommendations . fv I n As noted in Section 5.0, the level of capital recovery fee revenues } available to the Water Utility from a fee of $875.00 per equivalent - r residential connection would represent approximately 20 cents per 1000 f gallons of water sold. This is substantially less than the cost of 56 . cents per 1000 gallons associated with financing gr`cvth-related capital f improvements. This in part is due to the interesl ^mo is of financing such ? improvements through bonded indebtedness. !However, in order to have more impact, any consideration of capital recovery fee should be accompanied by a.. I some additional policy changes. These are summarized as follows: o Because future water supply requirements, as well as the need for additional water and wastewater treatment capacity, can be sharply SGt defined, both in terms of quantity and allocation between existing and v" future customers, the use of a recovery fee appears appropriate for this class of assets, o Transmission mains, interceptors, and both ground-level and elevated storage facilities represent a group of capital improvements that can F~ 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 ~t k 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 should be made part of the pro-rata repayment schedula. This will shift additional responsibility to the dsv@loper, but will (1) spread the {S 7-2. pin t r~ i r City's repayments over timel (2) allow repayment at a time when more { customers are tied to the aysteml and (3) remove the City from possible real estate speculation. ' o As used here, "specialized facilities" refers to capital improvements that are basically area specific. This would include many water pumping i stations, most sewage lift stations, and any other improvements that are r recognized as bensfitting a particular development, area, or customer group that can be defiled by location, For these situations, the recovery of capital costs through assessment or pro-rate cost sharing ( may be more appropriate then any other method because each planned E improvement can be analyzed in terms of its own cost/benefit characteristics, n Recommendations are as followsi rf 1) The Department should broaden use of pro-rata agreements to include reimbursements for oversize construction. This should encourage in-filling and development adjacent to existing service areas, improve cashflow, and defer reimbursement to a time when more customers are likely to be connected to the system, i 4 2) The Department should investigate possible use of assessments or the expanded use of pro-rata agreements for certain area specific psi growth-related capital improvements. Current Subdivision W Land II Devblopaent Regulations allow pro-rata methods for savage lift stations. Rxtension of this method to other facilities should be considered. f i " 3) A capital recovery fee appears feasible for the City of Dentont ~t however, the City should postpone proceeding to'phase 11 of this ! P study pending resolution of the bill pertaining to capital recovery fees currently before the Texas Legislature. 1R7-3 `I s,. 1 n BIBLIOGRAPHY Operating Bud et Electric-Vater-Vastawater, 198687. City of Denton, Department-of Utilities. Five-Year Ca itel im rovements Plan 1987-1991, City of Denton, h Department o utilities. r Comprehensive Annual Financial Reports, 1981-1985. City of Denton. Lf Department of Utilities Master Plan - 1986. City of Denton, n apartment o Utilities, i L.i Cit of Denton Land Use Anal sis -020110, City of Denton, Planning and 6. eve opment apartment. are Subdivision and Land Development Regulations. City of Denton. 1985, e Report on Long-Range Water Supply. Freese and Nichols, Inc. 1982. Water Treatment Plant Expansion Study, Freese and Nichols, Inc. 14V4 Wastewater Collection System Master Plan. Freese and Nichols, Inc.. Ju y 1985-t Capital Recover Feesr Nov Revenue Por Texas Cities. James M. J Gaston. Apr . Slater Distribution System Flow Analysis for Alternate Water 5u 1 ources. ogan an Rasor. Inc July 19 0. Capital Recovery Fees - Making Developers Pay Their Way. Bryce I Kennedy, October 1984. i Municipal Utilities Rata Studies Volumes 1,2 and 3. Management I Applications Consu t ng, Inc. Septem er Drafting Impact Fee Ordinances (Parts 1 and 2), Terry U. Morgan,,et al. Zoning and Planning Law Report. July-September, 1986. Affordable Housing and Equity Considerations of Development Impact Fees. Arthur C. Nelson (no date), 1 Capital Recovery Fee Systems in Texas Cities. David L. Pugh. 1986. , ~ rt { r6 1~ APPENDIX A Methods of Establishing Capital Recovery Fees r E VALUE OF SERVICE r r This method considers the policies and levels of capital cost recovery fees i r in neighboring jurisdictions. Indirectly this approach approximates the ' j market value placed upon the availability of water and wastewater service. S' It provides a generalized test of the reasonableness of fees that may be proposed by the City of Denton, i r I Information of this type was presented at the initial meeting of the Citizans' Committee as related to the cities of Port Worth, Plower Hound, Cornth, Lewisville, and Austin. Pees developed using this method are difficult to justify both 4't mathematically and legally, although this approach does furnish' valuable p, comparative information. SYSTEM BUY-IN METHOD ' j Under this methodology it is recognized that each new connection is placing a demand upon an established water and wastewater system. Each of those new service connections should contribute on a proportional basis to support the assets which comprise the system, Various techvigono can be v used to determine the value of the system into which the new connection is i ° buying. One method is to use the historical gross book value of the system assets, Another technique uses estimates of the current replacement costs of fixed assets for existing system capacities, Some authorities believe ah, that accumulated depreciation should be deducted from the gross book value fx~kr U or from the current replacement cost to arrive at the proper buy-in price. c others hold that this consideration is relevant only when estimating the i t;t current value of a system. Since the utility has a perpetual obligation to vl;. 41, ' provide service, and because the capital recovery fee is a one-time charge, { { N' t; tr. 1 r depreciation is not a valid deduction when method, utilizing the system buy in depreciated, replacement units must be that may be almost totally of capital recover provided without y fees) an additional levy Another method is to deduct from the principal amount of debt related gross book value of fixed assets the i to the water and wastewater systems, value represents the equity of the system into which the new connection is ~ buying. This This approach recognizes that the new customer should only pay y uP-front for the Pro rata share of subsequent. equity since the customer will y be defraying the cost of debt through user charges. i ' MARGINAL/INCREMENTAL Underl r, chargeybasoding t cost concept them thoat new users of the system pay a rr .1 system expansion, st recent or next increment of Generally system expansions provide excess capacity f which can be used by future customers, a Because the City of Denton maintains a detailed capital improvement program on it project b Y project basis, this method has the necessary Program data. Projects require further anal sis as f supporting ~ ' i required and excoss capacity. Y to the cost allocation between For water system& there is a need to analyze caPaoi peak hour and maxieum da r ty costs in terms of for Vasteweter Y requirements, and in relation to ffre floVa systems to determine l ' 9 and ~ peaking of Infiltration and inflow under both dr re uitements and the elements Y and rainfall conditions, Generally this method is reasonably accurate and method for establishing Provides capital recovery fees, a defensible , ISM , la, A•2 r y} Grp. 1 ((i /1 q 11tM1Td `n1 WMWKI ""I i r, l~rs ~ M j DEBT SERVICE APPORTIONMENT 4 This approach involves the consideration that a capital recovery fee should i recognize the capital component that is included in the user charge system. r") It includes the following stepsi 11 n 1. Est-!mate the total capital investment needed to serve new r 1fi connections during the next twenty years. 2. Calculate the present worth of those investments using an w' r'1 appropriate discount rate - usually one that reflects the differential between the estimated cost of capital and the ranticipated rate of inflation. 3. Calculate the annual debt service amount required to support a present day investment in the future facilities. i ^ 4. Based on population forecasts, determine the equivalent residential i units over the twenty-year period, and, using annual debt service t I requirements and annual ERU additions, calculate the capital ' k' r. recovery fee. 5. Deduct from the calculated fee the portion of, debt service that is being recovered under the existing schedule of user rates. 1,9t COMPONENT CASH PC.OV x~ ~ f al; This methrd considers the cash flow generated from new connections in conjunction with incremental increases in system capacity. In systems having relatively uniform growth characteristics coupled with fairly level annual expenditures for capacity expansion, this method Is generally ~.I applicable. Under stable conditions the capital recovery fee can be based on the unit r value of the cash flow in relation to th9 annual expansion costs, ~j In most cases this method is particularly appropriate for systems that are " rl almost completely developed throughout the service area, with only isolated u parcels remaining to be served. ~l ryfi ' , A-3 _ .a s.....uu.. u., _ ...Fr.u.:1RiMYH.bAYL.w4. -..~.....,..~.>.v.a.. n....... VV, It ,A f 1A01 i ,a MCI NN4;xfM. ~ 1 S r !IF MAJOR FACILITIES Rather than attempting to examine every capital improvement project and assign individual growth/non-growth factors, some utilities structure their n capital recovery fee programs around only the major system components. f~ These includes f Water Treatment and Wastewater Treatment Plants Source of Supply Facilities f° Storage Facilities Pumping Stations I ~ Major Transmission or Interceptor Lines Thi.a type of program structure can focus on the required cash outlay$ the { principal and/or interest components of debt service, or the amount of y,. 1..1 capacity set aside. EXISTING INVESTMENT 'r E Capital recovery fee programs can be based on the dollar amount that has previously been invested to provide service to each customer within each Y customer classification. These unit values, following adjustment for inflation and depreoiation, can be equated to the invastmant required for each future customer. In this way the cost to both #$'sting and future customers can be equalized. AREA ALTERNATIVE This method is roughly analogous to conventional assessment district proceedings in which the facilities costs associated with a specific area are recovered from those who derive direct benefits from the improvements. serving that area. K Li ,x F, A'-4 u, ,;f ' "Owl y 1 4 , !I Under this method the cost of providing a sf,ngle-family water oupply (for example) in one area may be different than the cost of providing the same type and degree of service in another area. j CASE BY CASE BASIS rhI Some utilities structure their capital recovery fee programs in relatively I,I broad terms providing them with the ability to individually examine arch request for new or additional service on its merits. I This method has the advantages of flexibility, a relatively low administrative burden, and the opportunity to structure capital recovery i fee contracts according to the specific conditions. I I Potential disadvantages include the concerris that each landowner, developer, subdivider, or homeowner may not experience identical equity levels, OTHER ALTERNATIVES AND CONSIDERATIONS I Some utilities have structured their capital recovery fa e programs to recognize the probability that all developable land will, sooner or later, be developed. On this basis they have adopted schedules of availability f fees or their equivalents that require an annual payment for each unit of undeveloped land, with 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 f pay all associated capital coats in advance. One variation to this approach has been applied to developers who make substantial "up front" contributions of cash or donated facilities that have a future or second phase component. These developers are given capital cost credits to be i applied against a future incr^i,.ent of development, P A-5 n 4 ■ 2 r 4 ~ I I APPENDIX H -LEGAL CONSIDERATIONS i1 ~g I"1 1.. r f~ ~ MI ;r I r F I i ~ ' NrM,,,„ , _,.-.w..w wp~lMlewe~aww~s.r.w~.w~...n.....-....... , . , v ; e li P:1' r moor Mom i•.~' j"Oorm ~ f i 1 l r LLOYD, GOSSBLINK, RYAN & FOWLER, P.C. Alturnfy$ at Law i feat Office Box 1725 Auslin,'Caxas 78767 ROBERT H. LLOYD Office (512) 472-1351 LESLIE E, SARRAS IrAUL G. GOSSELINK Trlecopirr (512) 472.0532 TIERESA 6 SALAMONE n BRENTW. RYAN GEORGE V. BASHAM 111 ROBBRT D. FOWLER LAURIE A. McCLUSKEY CHOLEY N. BLEVINS s, RI-IFT ' ROBINSON MARTIN C. ROCHELLE E MM January 15, 1987 I( FEDERAL EXPRESS Mr. Roge. Hartman Camp Dresser & McKee 2300 15th street L~ quite 400 3 Denver, Colorado 80202 Res 698001 (3) Capital Recovery Fees in Texas j R Dear Rogers I Enclosed pl4aee finds f 1. VariouA oases from bath Texas and other States. A. texas ! (1) Be Devel scent v. city of Misso ri City, 603 r S1W.2d 3 ex. v. App. ouston t D Stt.1, 1980, writ ref'd n.r.e.}I (2) Davis V, Bartonville watersu l Cor o ation, 678 S. .2 97 Tex. pp. ° ort ort 1 ri. no I writ); I~ (3) City of Colla a station v. Turtle Rock Corporation, 0 .w. ex. B. Other States (1) City of Dunedin V. Co tractors & Builders Ass o ne asY aunt , 312 "ro. a. st. pp. 1975) I r° 815 Brazos, Suite IIN) Brazos at Ninth Street Austin, Texaa 187111 i, i -10 s A Mr. Roger Hartman January 15, 1987 Page 2 (2) Contractors & Builders Association of Pinellas q It count v, City o Duned n, 3 9 80,2d 3l4 Fla. cert. en ed, 4 U.S, 867 (1979)1 (3) Home Builders & Contractors Association of Palm Beaa Count Inc, v. Board f q Count Commissioners of a m Beac ount , , So.2d 140 I' a. st, Ct. pp. 1984)1 r (4) Hillis Homes Inc, v. Snohomish county, 650 P.2d 1 83 was . 19 1 (6) Kn ollwood Horizons Inc. v, City of Freeport, I( el 357 N.E. 13 t. APP. 1 7- T- f~~ (6) Loup-Millar Construction Com an v. City of Denver, 76 P.2 11 0 0. 1 4 r 27) Cal. W. Jones coin anise V. , city of Ban Die o, ptr. 1 (8) Coulter v. City„of Rawlins, 662 P.2d 888 (Wyo. s 1983) . 2. Austin, Tex., Ordinance 851003•-J (Oct. 30 1985)1 3. Carious law rbview and other articles. as B. Kennedy, Ca ital Recover Fees - Making Qevelope_r.s Pay Ter Way October 19 b. A, Nelson, Affordable Housing and L uit j h! Considerations o Deve eament Impact ^ees (1986)1 y a. Morgan, at al., Draft In rm act Fee Ordina Deer L~eg~1. Foundation for acct on_s,, art , on ng and Planning ,aw Report, July- u ust 1986, at 491 d. Duncan, at al., Drafting ,Impact Fee 0rdinancesr Legal- Poundation for"8 ceeptione, art I , eon ng and P ann ng Law Report, September 1986, at 57. K i Ir, I .,~pr. w.... .a~.ruauNV.!wNr•.srr m..'aw..ria.. . .vv .vr•aavrv... .~.......nral Wa'[MWM1N..fY [wnwwwr rrn .r . w WM"j l" r r r 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 that the analysis in the attached ca esicouldi be applied iin Texas. To the extent that a fee in lieu of dedication" is + construed as an impact Pea, then the analysis provided in the attached Texas case of Cit of Colle a Station v, Turtle Rock Corp is useful in ana y~one met od by w c a cap tal recovery fee ordinance might be judicially reviewed. However, I believe that a capital recovery fee im distinguishable from a fee in lieu of dedication 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 assessed. In other words, the capital recovery fee's ggreater flexibility as a growth management tool also leads to a Mferent + standard of legal review. I E Our review of the cases to date indicate that the most successful method of attacking impact fees is on the basis that they are in actuality a disguised tax. However, due to the j budget circumstances discussed above, we have not completed our II analysis of that issue. I specifically address your attention to the first two-part article in the Zoning and Planning Law p Report entitled "Drafting Impact Fee Ordinances: Legal Foundation for Exactions." 1 find this article to do a very good job in answering the question which you and I have discussed concerns should the City of Denton have in drafting a capital - at recovery fee ordinance? If you review the article, you will note that there is some discussion of Texas cases that we have not enclosed. We have not enclosed those cases bbcause 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 J a Y i u ""owl f R i i ii Mr. Roger Hartman January 15, 1987 Page 4 approving capital recovery fees, we did not understand the scope s1 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 Flower 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 f tax, the fee was invalid. 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 fee method for providing infrastructure finanoing, we will be happy f>1 to assist you in drafting an ordinance or any other matter you request. Sincerely, j` i° Paul d aosselink PC30/cr Enclosures 2Ci69800,1/2 r. C.! h i Y + fl t 1 APPENDIX C - PENDING LEGISLATION i f ' III 1 i 1 E , 1 i i I .u~.Sti Wr'N MU4Nnw.~.M.ew Mw~+A'.u Y h r i WAM Draft If r'! i I } SY i N0, L' 1 A BILL TO BE ENTITLED AN ACT "i 3 relating to this imposition of fees to finance ~ capital Improvements by Political Subdivisions, r~ 4 BE IT ENACTED BY THE LEOISLJITUAE ' S Ot THE STATE Or TexAs SECTION 1, DEFINITIONS. In this Act, i! 6 (l) "Amortized charge" means an impact fee 7 pre•determir,ed Increments over a paid in s time, predetermined period of An amortized impact fee shell be tied to the property I' 9 on which it is levied and the obligation for 10 portion of the fee shall transfer along with an the unpaid y transfer of 1 n 11 unpaid eownership of the pro Party- Notice of any duo i 12 amortized and impact fees f which become due after the fE 13 certificate of occupancy is issued shall be recordable in .~j 11 the property tax lien records in the ofliae of the clerk fo' ly each county in which the I property is 10cated. If properly R.1 1 17 6 recorded, such unpaid fees shall create a lien upon the 2s property. A Siea shall not be effective against a home- stead. If property on which an amortised impact !a exists 10 Is subdivided, the governing body of the 70 division shall a political sub. pportion the charge among the new service 21 unite, 22 (2) "capital improvements plan" means a plan required 23 by this Act which identifies capital improvements or faoil- L.1 24 ity expansions pursuant to L.! which impact leis may be % 23 assessed. ' , WAS I `I 1 1..1 I ' 1 (3) "Capital improvement" means water supply, treat- 2 Mont and distribution facilities) wastewater collection and 3 treatment facilities) storm water, drainage and flood-. ry 4 control facilities) whether or not located within the f S service area, or roadway facilities, with a life expectancy 6 of three or more years, owned and operated by or on behalf 7 of a political subdivision. 0 14) "Facility expansion" means the expansion of the 9 capacity of an existing facility which serves the same 10 function as an otherwise neeeseary new capital improvement, 11 in order that the existing facility may eerve now develop- i. 12 Mont. "Facility expansion" does not include the repair, 13 maintenance, modernisation, or expansion of an existing I 1 14 facility to better serve existing development. is IS) "impact fee" means a charge or assessment imposed 16 by a political subdivision against now development in order 17 to generate revenue for funding or recouping the costs of j 10 capital improvements or facility expansions nagassitated by 19 and attributable to such now development. As Idiot in this 20 Act, the term "impact fee" includes amortited charges as 21 well as lump-Bum charges and includes capital recovery fees, 22 contributions in aid of construction, and any other fee 23 which functions as described in this definition. 24 impact fees do not include (a) dedication of land for { 23 public parks, or payment in lieu thereof, to serve park 26 needs or Ib) dedication of rights-of-ways or easements or 27 construction or dedication of on-site water distribution, -2* 1. 3 F Irr r 1 k , 1 wastewater collection or drainage faoilities, struts, 2 sidewalks or curbs, when such dedications and construction 3 are required by valid ordinances and are necessitated by and +""1 t attributable to the new developments provided, however, no S item which is Included in the capital improvements plan r. 6 shall be required to be constructed, except pursuant to 7 Subsection Ih)I2) of Section 2 hereof, and no owner snail be 0 required to both construct and dedicate facilities and pay 9 impact fees for the same facilities, 10 (6) "Land use assumptions" include a description of r1 11 the service area and projections of changes in land uses, 12 densities, intensities and population therein over At least 1 13 a ten (10) year period, f 14 (7) "New development" means the subdivision of landf is or the oonstruction, reconstruction, redevelopment, cogvar- i 16 sion, structural alteration, relocation or enlargement of 17 any structures or Any use or extension of the use of lands 1s any of which increases the numaer of service units. to (0) "political subdivision" means a city or town, M' ! 20 whether operating undsr the aansral LAN or under special or ~•1 21 home rule charter, a district or authority created under 22 Article 111, section 82 or Article BVS, section 99 of the 23 Texas Constitution, or certain counties as defined in 24 section 10 hereof, 25 191 "Roadway faeilitiax" means arterial or collector 26 streets or roads which have bean designated on en officially r 41 27 adopted roadway plan of the political subdivision, together ti: I~~ w 4 1 yy I.I I with all necessary appurtenances, but does not include any 2 roadway,i or associated improvements designated on the 3 federal or Texas highway system. r 4 110) "Service area" means the area within the corporate 9 boundaries, or extraterritorial jurisdiction as defined by r 6 Article 970a, of the political subdivision to be served by f 7 the capital improvements or facilities expansions specified i a in the capital improvements plan, except roadway faoilities. ~j 9 The service area, for the purpose of this Act, may include 10 all or part of tie land within the political subdivision or 11 its extraterritorial jurisdiction, except roadway facili- 12 ties, For roadway facilities, tarvice area is limited to an 13 area within the corporate boundaries of the political 14 subdivision and shall not exceed a distance equal to the 19 average trip length from the nek development, but in no " 16 avant more than three (31 miles, which service area shall be 17 served by the roadway facilities designated in the capital l.1 le improvement plan. 19 (11) "Service unit" means a standardized measure of LJ 20 consumption, use, generation or discharge attributable to an 21 individual unit of development calculated in accordance with n 22 generally accepted engineering or planning standards for a 23 particular category of capital improvements or facility 24 expansions, 23 S6CTfON AUTHORIZATION OF IMPACT PEE. )a) Unless 26 otherwise specifically authorized by law or this Aot,, no 27 governmental entity or political subdivision shall anaot or 1 ~ r I 1 ~ I ~ I 1 impose an _impact feet Political subdivisions are authorised 2 to enact or impose impact fees on land within their eor- 3 Prato boundaries or extraterritorial jurisdictions only by / complying with this Act, except imraot fees shall not be S enacted or imposed in the extraterritorial jurisdiction for 6 roadway facilities. I 7 W An impact fee may be imposed only t0 pay~yh~ oats 0 Of constructing capital improvements or facitity,expaneions, 9 including and limited to the construction contract pride, I _ 10 surveying and engineering fees, land acquisitions costs 11 (including lend purchases, court awards and coca, attorneys { 12 fees, and expert witness fees), and the fees actually paid i 13 or contracted to be paid to an independent, qualified engi 1A near or financial consultant preparing or updating the 16 cepital improvements plan, who are not employees' of the 1 16 political subdivision, Interest charges and other finance 11 costs may be included in determining the amount of impact 10 feet only if tho impact fees are specifically pledged or 19 otherwise contractually obligated to the payment of prin- 20 cipal and interest on bonds, notes or other obligations 21 issued by or on behalf of the political subdivision to 22 finance the capital improvements or facility oxpansions 23 identified in the capital improvements plan. Ell 24 (c) tmpact fees ~ hall not be adopted or used to pay 2E for any of the followings f^) 26 11) The construction, acquisition or expansion of W 27 public facilities or assets other than capital improvements a5• aywa n . 14 1 r' t ~t II 1 or facility expansions identified in the capital improve. C t 2 Monts plan, 'JI k' 3 (2)CRepair, (op`axy ton; or maintenance of existing or 11 41 4 new capital improvements or facility expansions. S (3) upgrading, updating, ansioa or replacement of vY ~ 6 ~xiat4nq_g~pltal improveaanta.to serve existing developaent 7 in order to most stricter safety, efficienoy, environmental . 6 or regulatory standards, 9 (4) Upgrading, updating, expansion or replacement of 10 existing capital improvements to provide better service to t 11 existing development. 12 (5) Administrative and operating costa of the politi 13 cal subdivision. 14 (6) Principal payments, Interest or other finance 13 charges on bonds or other indebtedness, except as allowed by { 16 Subsection (b) of Section 2. ' 17 (d) The political subdivision shall use qualified j 18 professionals to prepare the capital improvements plan and $ " 19 to calculate the impact fee. Tile capital improvements plan q~ 20 shall contain specific enumeration of the following itemsi ; r 21 (1) A description of the existing capital improvements ~H 22 within the service area and the costs to upgrade, update, t, 23 improve, expand or replace such improvements to meet axis ` 24 ttnq needs and usage and stricter safety, efficiency, 15 environmental or regulatory standards, whioh shall be prepared by a qualified 26 professional engineer licensed to wli 27 perform such professional engineering services in the State A, h kr .h n M n 1 of Texas, k^! 2 f21 An analysis of the total capacity, the level of 3 currant usage and commitments for usage of capacity of the I~ 4 existing capital SmprevemeAts' which shall be E prepared by a qualified professional engineer licensed to perform such E Professional engineering services in the state Of Texas, ` e (3) A description of all or the portions of the ,t capital improvements or facility expansions and their costs 9 necessitated by and attributable to now dev6lopmont in the' 10 cUaervics area based on the approved land use auumptfons, i,~{F' I 11 which shall be prepared by a qualified professional engineer 22 licensed to perform such professional engineerin 5.; ` 13 in the State of Texas. 4 cervices 4dr, JJ is (4) A definitive table ♦stabllehinq the specific level 1E ar quantity of use, consumption, generation and discharge of Y 1 16 service unit for each category of capital Smprovaments or r df 17 facility expansions and s , an equivslencY or conversion table r° 18 establishing the ratio of a service unit to various types of { tii s 19 ~ land uses, includingi,v , but not 1Smited to, residential, - hl1 ' 20 oommeralal and industrial, 21 (5) The total number 22 of projected service unite i 23 necessitated by and attributable to now development the service area based on the approved land use assumptions i 24 and calculated in aocordanca with generally accepted engi. „ 2E neeYing or planning criteria. 26 l61 The projected demand for capital itnplrovamentf or ' 27 facility expansions required by new service units projected I f / -7. fit, ' 1 r r r~ s ' 1 over a reasonable period of time not to exceed 10 years, 2 (7) The impact toe per urviae unit shall not exceed 3 the amount determined by dividing the costs of the < or P ital. 1 1rProvementr described in (3) by the total number of Pro- III ! jetted service units described in 13), Yf the number of new r'1 6 Service units Projected over a reasonable period of ties is 1*0e than the total number of new Service units Shown 6 by the approved lend use assumptions at fall development of the 9 service area, the maximum impact tee per service unit Shall s16 be calculated by dividing the costs of the portion of the art„ 11 capital improvements heoesaitated b Y and attributable to 12 projected new service units described in (6) by uhe pro- ( t~ ,4(y+ ~ ~.l 13 looted new service units described in (6). r 14 ~.l (rl (11 This subsection applies only to impact lees , 16 adopted prior to the effective dace of this Aar. per land 16 which has been Platted in accordance with Article 474a, 17 Texas Revised Civil Statutes, and/or the subdivision or ell 18 Platting Procedures of a political subdivision Prior to the l 19 eflsctive data of this Act or land on which new development ~i 20 occurs or is proposed without plrttinge the political as/ 21 subdivision may esaess the impact fans at any tide during R 22 the development aPProvel/building process and, except as ~J 23 Provided in subsection (h), may collect the feels at either 24 the time of conneotion to the political subdivisions water 28 or sewer system or at the time the ,us.. political subdivision 26 issues either the building permit or the oertlfioate of 27 occupancy, ~a r ' iJ p rt~~, j a owl i ~CtlVM t . I I, 1 (2) This subsection applies only to i ~ mpaot lees 2 adopted subsequent to the effective data of this Act. For 3 new development which is platted in accordance with Arti.. 4 ale 9744 and/or the subuivision or _ I I platting i procedures of a ! political subdivision prioa• to the adoption of an iapaaE { 4 fee, no impact fee shall be collected on any service unit 7 for which a valid building permit if issued within one til 6 year subsequent to the date of adoption of the ~ f { I impact fee, { 544> 9 (3) This substation applies to land which is platted 11 f{ 10 subsequent to adoption of an impact fee which is adopted 11 after the effective date of this Act. The political "subdi- r~'< 12 vision shall assets tht impact fees at the time of racer- 13 f~,~+ I ' elation of a subdivision plat or other plat pursuant to I 14 Article 974a, Texas Revised Civil Statute$ and/or the S a , 16 subdivision or platting ordinance or procedures of any 114 I~r } 16, political subdivision in the official records of the County 17 Clerk of the county in which the tract is located and, It except as provided in Subsection (h), may collect the fees 19 at either the time of connection to the political snb~ 20 division's water or sewer system or at the time the ptilitir i, 21 cal subdivision issues either the building permit or the 22 certificate of occupancy, {r" 23 (4) For land on which now development occurs or is rn 24 proposed to occur without plai,tinq, the political eubdivi- 25 sion may assails the impact fee at any time during the i7y~f4' 26 development/building process and may collect the fees' at 27 either the time of connection to the political subdivision's i ~ msg. Yy~}rf . i~ i J~ i, N, i water or sewer system or at, the time the political subdivi- P! 2 sion issues either the building permit or the certificate of 3 occupancy. 1 (S) Assessment means a determination of the amount of A S the impact foe in effect on 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 r1 A act by the political subdivision is required. I 9 M After assessment of the impact fees attributable + - kJ 10 to the new development or execution of an agreement for r i 11 payment of impact fetal no additional impact fees or 12 increases thereof shall be assessed against such tract for 13 any reason, unless the number of service units to be devel i ' 1/ oped on such tract increases. In the event of the inaz Vase 1S in the number of service units, the impact fees to be ~10 16 imposed shall be limited to the amount attributable to the + 17 additional service units, is (1) A political subdivision is authorized to enter 19 into an agreement with the owner of a tract of land for 20 which the plat has been recorded providing for the time and 21 method of payment of the impact fees. 22 (h) Except for roadway facilities, impact teas may be 1 23 assessed, but shall not be collected, in areas where sor r. 26 viaas are not currently available unlessi 25 111 a capital improvement facility or facility expan- 26 lion has boon identified in the capital improvements plan 27 and the political subdivision commits to dommonee 0.- 34 f ; a 4..: 1. t ik' yr II 4r, } 1 i I 1. r r~ I Construction, pursuant to duly awarded and exeoutsd 2 contracts covering substantially 411 of the work required to ! 3 provide service, within 1 year and' have the service' e available within a reasonable period of time considering the i s capital improvements or facility expansions to be 6 constructed, but in no event longer than 3 yearsl 7 (2) the political subdivision agrees that the owner of 8 a new development may construct or finance the capital ' 9 improvements or plant expansions and agrees that the costa 1o incurred or funds advanced will be credited against the 11 impact fees otherwise due from the new development, or 1' 12 agrees to reimburse the owner for such costs from impact v 13 fees paid from other new developments which, will use such 14 capital improvements or plant expansionar or is (3) an owner voluntarily requests the'; llitical sub- 16 division to reserve capacity to serve future development and 17 the political subdivision and owner enter into a valid i8 written agreement. 19 (i) Any new development for which an impact 16-s has 20 been paid shall'be entitled to the permanent use and benefit 21 of the services for which the fee was exacted and shall be 22 entitled to receive immediate service from any existing' 23 facilities with actual capacity to serve the new service j; t° 24 units, subject to compliance with other valid regulations. 3 25 (j) Political `subdivisions are authorised to expend ti 26 funds from any other lawful source to pay for all or a 27 portion of the capital improvements or facility expansions Q, a ''FF A Owl ! g 1 .i h Ij 1 1 to rrduee the amount of impact tees, 2 (k) Political subdivisions and other governmental j 3 entities are authorised to pay impact fees imposed pursuant. / to this Act. S (1) Any construction of, contributions to, or dedi- ! 6 cations of off-site roadway facilities agreed to or required € 1 7 by a political subdivision as 'a condition of development ,t 0 approval shall be oredited against roadway facilities impact f^tc` 9 feet otherwise due from such development. 10 SECTION 3, PROCEDV0E8 FOR ADOPTION OF IML~'1, sl1' FE E• (a) 11 Except as otherwise provided In this Act, An impact fee as 12 authoriagd by Subsection (b) of Section 2 of this Act'ahall iJ be levied by a political subdivision only upon complying 11 with the provisions get forth in this section, }w is (b) A political subdivision intending to impose an 16 impaotr,'ivs shall adopt an order, ordinance or resolution ,,Ke 17 eatablis,-Ag a public hearing date to consider land use to assumptions within the designated service area that will be 19 used to develop the capital improvements plan, It r i 20 (o) Not later than the day of adoption of such order, t 21 the governing body of the political subdivision shall 22 appoint an advisory committee in accordance with Section 7 ' 23 of this Act, 21 (d) on or before the data of the first publication of 25 the notice, the political subdivision shall make available 4 ~~3twr 1 ~'i. 26 to the public its land use assumptions, the time period of Lj 27 the projections and a description of the general nature of U hJ ' -12- t'{'d aww I r' /yfJ , i , 2 the capital Improvement faeilitles, 2 (e) The political subdivision shall provide public ( 3 notice of the hearings / (1) At least 30 days before the hearing, the political f ),j S subdivision shall send a notice of the hearing by certified 6 mail to any person who has given written notice by certified 7 or re gistered soil to the ally secretary or other designated A official of the political subdivision requesting notice of 9 such hearing within 2 years preceding the date of adoption I 10 of the resolution or order setting the public hearing. 11 (2) The political subdivision shall publish notice of i y li LJ i + 12 the hearing once a weok for three consecutive weeks, the 23 first notice to appear at least 30, but not more than 60, S. f 11 days before the data set for the hearing, in one or more 15 newspapers with general circulation is each county In which fir' 16 the political subdivision lies. The notice of public hear- j ~ . 1 17 Ing shall not be in the part of the paper in which legal 19 notlies and classified ads appear, shall not be smaller than c~ 19 ono-quarter page of a standard-size or tabloid sire news- 2p { paper, and the headline on the notice moat be in 1A-pciab or 21 larger type, j a;( 22 (3) The notice shall contain the le2lowing$ } 23 (A) A headline to read as followss t~3 24 "NOTICt OP PUBLIC NEAAINO ON LAND USE ABSUMPT20MS ' Yt~, 2S RELATING TO POSSIBLE ADOPTION OF IMPACT f,628" # s 26 (81 the time, date, and location of the hoaxing) ' h,41 27 (C) a statement that the purpose of the hearing is to i r X}~11PV /w.. {frtA lxs, t , r( i 4" 1; I I 1 aonsidar the land use r assumptions that will be used to i..1 2 develop a capital improvements plan pursuant to which an 3 impact !es may be tmposedt ~ ( r~ " a fD) an easily understandable map of ' the service area i 6 to which the land use assumptions applyi and r' 6 (a) a statement that an Y weber of the public has the 1 ,tl 7` right to appear at the hearing and present evidence for or 6 against the land use assumptions. M After the public hearing, the " political subs ~ a 20 division shell determine whether to adopt or reject an f 11 ordinance, order or resolution approving the land use {i 12 assumptions, I 13 (q) The political subdivision shall have 30 daysfrom t I Y r~4il ; 14 the date of the public hearing within which to approve or 15 disapprove such land use assumptions. I 16 (h) An ordinance, order or resolution approving land wpK, 17 use assumptions shell not be adopted as an emergency 18 measure, f 19 (tf if the governing body adopts an crdtnanoe, order r 20 or resolution approving the lend use. err umptionsr the 21 political subdivision shall provide for A capital improvs- 22' ments plan to be developed by Qualified professionals using ' 23 gensrelly accepted engin}erinj and ~yt planning practices in i t+{ 21 accordance with Subsection Id) of Section 2. 23 l~ its C, 'w 26 the 0) ' upon Completion of the capital improvements plan, f governing body shall adopt An order or resolution 27 Setting a public hearing to dianuse the adoption of the plan °11- K ` ~I 4 1 7 ' I and imposition of the impact lee. E n 2 Ik) A public hearing must be hold by the governing 3 body of the political subdivision to discuss the proposed' r+ / ordinsnee, order or resolution adopting a capital improve- r I 5 ments plan and imposing an impact lee. On or before the 6 data 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 vs n 9 notice of the hearings x; 10 (S) At least 30 days before the hsaringr the political 7 11 subdivision shall-send a notice of the hearing by c►Ytified I 12 mail to any person who has given written notice by certified 13 or registered mail to the city secretary or other designated ' 14 official of the political subdivision requesting notice of { ! SS such hearing within 2 years preceding the date of adoption 16 of the resolution or order setting the public hearing. I 17 (2) The political subdivision shall publish notice Of r., 16 the hearing once. a week for three consecutive weeksi the ' 19 first notice to appear at least 30, but not more than 60, t+. t 1 20 days before the date set for the hearing, in one or more L 21 newspapers with general ciroulation in each county in which 4i 22 the political subdivision live, The notice of public hoar- 23 Sng shall not be in the pert of the paper in which legal a 24 notices and classified ads e ppear, shall not be unaller than V 25 one-quarter page of a standard-sits or tabloid side news- 26 paper, and the headline on the notice must be in is-point or 4 f$ 1I" ` 27 larger type. >J i -15- u ti k • » ( , I s 1 (3) The notice shall contain the following, 2 {A) A headline to read as followsi 3 "NOTICE OF pusue NPARINO ON 1 ADOPTION or INPACT Per$" 3 IH) the time, data, and location of the hearing) 6 (C) a atatemaut that the purpose of the hearing is to i 1 7 consider the adoption of an impact fee, 9 (D) an easily understandable map of the service area 9 on which the proposed fee will be levied) ~ j i i 10 (E) the amount of the proposed impact fee per service 11 unitst and 1 Ty 12 (F) a statement that any member of the public has the 4 ds! j ~.I 13 right to appear at the hearing and present evidenoi for or h 14 against the plat, and proposed fee, ` 19 (m) The advisor y committee shall file its written ttt 16 comments on the proposed capital improvements plan and t; ~f i if I "1 17 impact fees not led$ than 3 business days ~ Prior to the 16 public hearing, 19 (n) The political subdivision shall approve or des- ' 20 approve the adoption of the capital improvements plan and I 21 imposition of ar Impact fee within 30 days after the public 22 hearing, i'~ ~ 23 - (o) An ordinance, order or resolution approving the r t 24 capital improvements plan and imposition of an impact fee 29 shall not be adopted as an emergency measure. ; 1 WI 26 (p) No moratorium shall be placed on new development 27 pending the completion of all or any part of the process r'. s K Nf f FF.( ~ "ARM I ll i i s t 1 necessary to develop, adopt or update 2 the impact lee, kf M-TION 4. gjE - OF PROCEED , ----~--..~....3f ~+1 the order, ordinance 3 or resolution levying an impart toe shall provids that 411- f 4 funds 0012eoted through the adoption of an ' lalcaat fee .r r s S be de osited in int ` }{,~g.bsazin~ accounts oleartyidenti~ tying the category of capital improvestents or fao111ty y expansions within the service area for which rite !eo was e adopted, Interest earned on impact tees shall be eo aiderad { +ycN . 9 funds of the account on which it is earned and sh'All be 10 subject to all restrictions pissed on use of impact feet 1 21 under the provielanr of this Act. Expenditures of Impact if 12 t oo funds shall be mad* only for the purpoooe for which the 1 13 Impact [se was imposed as shown by the `capital lmpro" is ' n4 n pion ahd as authorized by this Act. The reaorde, '~of Y+ 1S accounts ~ into Which 71~~ ~ ~ impart fsoe are deposited shall be rpah ~ 16 for public inspection and aopYing during ordinary buajftojg f~ 17 hours, Ott«. 18 {.j rf~} (b) The governing body shall be reaprnsibla for n 19 supervising implementation of the capital Improvements pion 20 in a timely manner, 21 SECTION S. EFUNDS. ~~t fat Upon the request of 22 an owner F. of the property on which an impact tee has boon paid, the 23 Political subdivision shall rotund this impact fees if oxlst-m 24 < 1, 2S lnq f°cllleiea are available and service is denied, or the political subdivision has failed to r 2E within aaMnoe construction 1 Yea r, or s arviee is not available within a mason- rt 27 able period of time considering the capital improvement or r E . i Y f~rf, ~ I 1 I facility expansion to be construoted, but in no event later 2 than $ years from the data of payment pursuant to the 3 provisions of Subsection (h)(1) of Section 2 hereof. 4 (b) Upon Completion of the capital improvements or 3 facility expansions identified in the capital improvements d plan, the political subdivision shell recalculate the iMaot 7 tee using the actual costs of the capital improvements or 1 a facility expansion. tf the impact fee calculated based on k~ 9 actual cost is less uhan the impact fee paid, the political p~I 10 subdivision shall refund the difference if the difference 11 exceeds the impact fee paid by more than 10%. 12 (o) The political subdivision shall refund any impact 13 foe, or portion thereof, which is not expanded as authorised 14 by this Act within 10 years from date of payment. yr~ is (d) Any refund shall bear interest calculated from the h~fl 16 date of collection to uhe data of refund at the statutory 17 rate as met forth in Article 1.03, Title 79, Revised Stst- 10 utes (Article 5069-1.03, Vernon's Taxes Civil StAtutea{, or its successor statute. ;u (s{ All rotunda shall be made to the record owner of 21 the property at the time the refund is paidr provided, 22 however, if the impact fees were paid by another political 23 oubdivision or governmental entity, payment shall be made to 24 such political subdivision or governmental entity. 23 M The owner of the property on whioh an impact lee r 26 has been paid or Another political subdivision or govern i.3 27 mental entity which paid the impaot fee shall have standing wJ t i ii 1 to cue for a refund under the provisions of this section. 2 SECTION 6. 4 t~" (a) A political subdivision r in i act !a shah 1iWAp~`--- isa 3 years, which eve 4 and capital inprevsmants plan at least S three-Year period shall cossssence gross the date of the adop- l i 6 tion of the capital improvements plate- 7 (b) The political subdivision shall review and oval- 6 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 2. 11 (e) The governing body of the political subdivision 12 shall, within 60 days of receiving the update of the land 13 use assumptions and the capital improvements plan, adopt an i 14 order setting a public hearing to discuss and to review the 16 update, and shall determine whether to amend the plan. I 16 (d) A public hearing must be hold by the governing ` 11 body of the political subdivision to discuss the proposed r~ is ordinance, order or resalution amending land use &$sump- 19 tions, the capital improvements) plan or the impact lee. on 20 or before the date of the first publication of the notice, 21 the land use assumptions an8 the capital isapxovessents plan ~ 22 shall be available to the public. 23 (a) Ths political subdivision shall provide public i, r• 1 24 notice of the hearings 29 111 At least 30 days before the hearing, the polldioal 26 subdivision shall send a notice of the hearing by certified s, i I 27 mail to any person who has given written notice by certified 11LJJJ i L.1 . r~r. K. r.wi gT..NAO ri.I ,...n .11 m. P•..n a F. GC n I or registered mail to the City secretary or other designated 2 official of the political subdivision reguesting notice of I t 3 such hearing within 2 years preceding the data of adoption 1 a of the resolution or order Netting the public hearing, S (2) The political subdivision shall publish notice of 6 the hearing once a weak for three consecutive wwka, the 7 first notice to appear at least 30, but not more than 60, 8 days before the data set for the hearing, in one or more i ( 0 newspapers with general circulation in each county in which 10 the political subdivision lisa. The notice of public hear- ~ j 11 ing shall not be in the part of the paper in which legal ~~JJ 12 notices and classified ads appear, shell not be smeller than 13 one-quarter page of a standard-size or tabloid size news- 14 paper, and the headline on the notice must be in 18-point or 15 larger type, 16 13Y The notice shall contain the followingk 17 (A) A headline to read as lollowsk 18 "NOTICE Or PUBLIC NEARING ON 10 AMENDMENT OF IMPACT FEES" 20 10) the time, date, and loeetien of the hearings 21 {C) a statement that the purpose of the hearing is to 22 consider the amendment of a land assumption plan, capital 22 improvements plan and imposition of an impact f4er 2e (0) an easily understandable description and map of 29 the service area on which the update is being prsparedf and 26 (E) a statement that any member of the public has the 21 right to appear at the hearing and praaent avidenoe for or f -20+ I .w "oil r"1 c G +'1 S1': Y ii h 1 against the update. rf 2 (f) The advisory committee shall file its written 3 comments on the proposed amendments to the land use aaeump- 4 tions, Capital improvements plan and impact fee not less 5 than 3 business days prior to the public hearing. 6 (g1 The political subdivision shall, approve or dim- 7 approve the amendment of the land use assumptions, the B capital improvements plan and modification of an impact fee i 9 within 30 days otter the public hearing. 10 (h) An ordinance, order or resolution approving the 'nn} 11 amendment to the land use assumptions, the capital improve- f 12 manta plan and imposition of an impact fee shall not be 13 adopted as an emergency measure, 11 BECTIO14 1. ADVISORY COMMITTEE. (a) A capital 15 improvements advisory committee, comprised of not less than if 16 lava members, shall be appointed by a majority vote of the I 17 4Yerning body of the political subdivision, Not loss than f 10ti, Of the memberahi.p of the adviroz ooASSitta shall be IMJ 10 y representatives of the 'real estate, development or building 20 Sndustrias, who are not employees or officials of a politi- " 21 cal subdivision or governmental entity, If the impact fee ~ry 22 is to be applied within the extraterritorial jurisdiction of 23 the political subdivision, said membership shall include a 24 representative from such area. Lj 25 (b) The advisory committee shall serve in an advisory 26 capacity and is established to perform the following ~j 27 funotlonsi w.. -21 y ? 17 n r 1 111 to advise nd_ "i4t_ th!_AW.1,iti.QA -iWkUNJticn in r~ 1 2 adopting land use-aeeumptlonei 3 (2) to review the aapltal improvepent• plans and file 1 written copsaentsj d (3) to eaenie~ or and evaluate implementation of the ' 7 (4) to file semi-annual, reports with respect to the 8 Progress- a the ;capital improvements plan end to report to 9 the political subdivision any perceived inequities in 10 implementing the plan or imposing the impact fee) and Ii 21 (S1 to advise the political subdivision of the need to I ~J 12 update or revise the land use assumptions, capital improve 13 meats plan and impact fee, 14 (a) The political subdivision shall make available to 15 the advisory committee any professional reports with respect i 16 to developing and implementing the capital improvements 17 plan. 10 i, (dl The governing body of the political subdivision 19 shall adopt procedural rules for the committee to follow in 20 carrying outs its duties, 4~ t 21 BECT2014 8, aENCRU PROVISIONS, (a) 21 the governing ~ f l 22 body of the political subdivision does not perform a duty 23 imposed under this Act within the prescribed time period, a u 21 person who ham paid in impact fat or an owner of land upon 28 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 Astor* of the unperformed J U 17; i r 1 I duty and requesting that it be performed within 60 days of I 2 the re est, If the ~,.I Rv governing bady of the political sub- 3 division finds that the duty is required under this Act and r1 t is late in being performed, it shall cause the duty to S commence within 60 days of the request and continue until 6 completion. i k~j 7 (b) A reoord must be made of any publij hearing f 6 provided for in this Act. Such record shall be maintained 9 and be made available for public Inspection by the political io subdivision for at least 10 years after the hearing, 3 11 (o) Any state or local restrictions that apply to the 12 imposition of an impact fee in a political subdivision where try 13 an impact fee is proposed will be cumulative with the l/ restrictions in this Act, is (d) An impact tee which is in place on the effective 16 date of this Act must, within 3 years of maid effective € 17 date, be replaced by an impact fee made pursuant to this 1 is Acto provided, however, any political subdivision whose 19 Impact fee has not bean replaced pursuant to this Act within 20 1 year of the effective date 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 i~ 23 $motion 2 by more than 101 for an amount equal to 2 times 21 the difference between the maximum impact tae allowed and 26 the actual impact !e• imposed plus reasonable attorney !'ae ~ 26 and court costs, 27 " (e) This Act shall not be construed to prohibit, , -23- I n 1 o y~ r n r I affect or regulate any tax, tees charge or assessment which n 2 is specifically authoriaed by law, i.I 3 SECTION 9. APPEALa. A person who has exhausted a11' 4 administrative remedies within the ~ political subdivide L. ; a and 5 who is aggrieved by a final decision is entitled to trial de 6 novo under this Act. A suit to Contest an impact fee must 7 be filed within 90 days from the date of adoption of the ( 8 ordinance, order or resolution establishing the impact fee, i 0 Except for roadway facilities, a person who has paid an 10 impact fee or an owner of property on which an impact fee 11 his been paid shall be entitled to specific performance of µ 12 the services b the ! Y political subdivision for which the [aa 13 was paid. Nothing in this section shall require uonstruc- 14 tion of a specific facility to provide such services. Any 15 suit must be filed in the county in which the major portion 16 of the land area of the political subdivision is located, A 17 successful litigant shall be entitled to recover reasonable 18 attorney lees and court costs. An impact fee shall not be i 10 held invalid because the public notice requirements were not 20 complied with if compliance was subetantiai and in good 21 faith, 22 SECTION 10. STORM wATEN, DRAINAGE AND FLOOD dONTROL. 23 (a) Any county with a population of at least 262 million, i~ 2/ according to the most repent federal oenaue, or which 25 borders a county with a population of at least 2.2 million, V w 26 and any district or authority created under Article XVi, 21 Section 59 of the Taxes Constitution, within any such county ' pal 1 1 v~ I .24„ yy 1 L I that is authorized to provide storm water, drainage and r 2 flood control facilities, is authorized to impose impact 3 1400 to provide starm water, drainage and flood control n i improvements necessary to soeoanbdate now developwnt. S (b) The imposition of impact team authorized by this r1 6 subsection {a) is exempt from the requirsoonts of Section S, fff 7 Section 6 and Subsection (d) of Section 8 of this Aet, R 8 unless the political subdivision proposes to increase the 9 impact lee, a 10 (o) Any political subdivision described in subsea- 11 Lion la) is authorized to pledge or otherwise contractually 12 obligate all or part of the impact fees to the payment of 13 principal and interest on bonds, notes or other obligations 14 issued or incurred by or on behalf of such political sub- 15 division and to the payment of any other- contractual 16 obligations. 17 (d) An impact fee adopted by a political subdivision 38 pursuant to subsection lei shall not be reduced it 1) the 19 political subdivision has pledged or otherwise contractually 20 obligated all or part of the impact fees to the payment of . 21 principal and interest on bends, notes or other obligations 21 issued by or on behalf of such political subdivision and 2) 23 the political subdivision agrees in such pledge or contract 24 not to reduce such impact fees during the tern of such 2S bonds, notes or other contractual obligations. 26 SECTION 11, EXEMPT TRANSACTIONS. This Act doom not L~ 27 apply to impact fees, charges, fees, asiessmsnts, or, LJ i r I contributions paid by or charged to a district created under j 2 Article XVI, Section $9s of the Texas Constitution to J another district created under Article XVI, section $0, of I the Texas Constitution, if both districts are required by S law to obtain approval of their bonds by the taxes water 11 I ..i 6 Comaission, i 7 s"joN 12, tKIROZNCY MANN. The importanoe of this 8 legislation and the crowded condition of the oalendarn in n 9 both houses crests an emergency and an imperative public 10 necessity that the constitutional rule requiring bills to be r" 1 li read on three several days in each house be suspended, and 12 this rule is hereby suspended. I l i rt E i •26. , { oww* r~l APPENDIX D CITIZENS' COMMITTEE WORKSHOPS JJn Citizens, committee members were provided with a broad selection of data at the first workshop meeting. These includedi 71, ' 1. "Statement of Committee. adopted by the Dallas Advisory Recovery System Principles Management Capital 1 I 2. Public Utilities Board Agenda Item (10/1/84) "Consider Policies Regarding Extensions and Oversizing of Water and Sewer Lines." 3. Public Utilities Hoard Agenda Item (11/28/84) "Consider policies f Regarding Extensions and Oversiting of Water and Sewer Lines." i 4. Transmittal memo to Board from R.E, Nelson dated 12/13/84 and 4 ki attaching Resolution to City Council, together with Outline of Proposed ordinance dated 12/12/84. City Council Agenda Item dated 1/8/85 "Consider Public Utilities 5' Board Resolution Regarding Capital Recovery Pees." ! C 6. Various newspaper articles ~ y, "Capital Recovery Peen Now Revenue for Texas Cities," Public ~ f Works Resource Center, Texas Engineering Extension Service, Texas A&M University, 1983, 8, "Capital Recovery Pee Systems in Texas Cities," Public Works Resource Center, Taxes A&M 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 1,000 gallons to water customers and the monthly charge to i~ wastewater customers, Stacked bar charts were used to indicate the portion of the overall charge that related to operations and maintenance, -to capital costs associated with existing customers, and to capital cost I expenditures benefiting future customers. 'these charts are reproduced herein as Figures 2 and 3. i I I j D..1 1 ISM I . N Y t 1 ~ JnJI r P acIi A total of twenty-five persons were selected as members of the Committee. r, Attendance at the workshops (which were held on February 9, February 23, and March 23, 1987) was extremely high as was the level of interest and involvement. I First 4JO,___._rkshop During the first workshop Mr. Robert Nelson, Utilities Department Director, r, presented each participant with a three-ring binder containing 93 pages of capital recovery fee information compiled by the City of Denton during the f 1 prior two-year period. Issues covered during the first workshop included a general description of { the water and wastewater system facilities, the general level of capital 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'gource of supply,and CDM's participation in the study. f I' I Four issues were raised by the Committee for discussion and review during the next (second) workshops 1. The Impact of a capital recovery fee on economic development. 2. The cost impact of a capital recovery fee on the eusto+eer#,a monthly` bill, l.J 3. The need to provide a definition for the term "Capital Reoovery Fee" 4. Exploration of legal considerations. I; II Saoond S~orkshop ~ u Issues discussed at this meeting of the Citizens' Committee included: Elements to be considered in a capital recovery fee definition D-2 1 l ■ i ~r II The bill sponsored by the Home Builders Association that is now before h the Texas Legislature, i The differing impact of capital recovery fees on the various customer classifications. 1 ' ! Litigation potential. t'? Possible effects on land values. Possible effects on the coat of homes. n Oversizing of water lines and fire flows. ,.i Inflationary impacts. r. Replacing or upgrading of facilities. r~ Future quantity rates with and without a capital recovery fee program. Denton's current financial condition. Impacts on students and senior citizens with and without a capital _i recovery fee program. j Cogeneration impacts. The application of a capital recovery fee program to the resale or remodeling of houses. Administration of capital recovery fee programs. Utility financing considerations. Equity. i Third Vorkshop { Items discussed during this meeting includedi Preliminary results of the survey of other Texas cities being i conducted by Camp Dresser & McKee: I Utility cost estimates for 1988 and 1993 for operations and maintenance, capital expenditures benefiting existing customers, capital expenditures benefiting future customary. ,r. Magnitude of revenue shortfalls. I i D-3 I F B,~IWy .y~ r q 5 n worm } I i Theoretical capital rbnovery fee levels based oni (1) incremental r costs and (2) cyclic costs. 6 .I l _1 ri 1 i 1 I; D-4 1 r 11 r 1 1 1 t/h I. I l I' t. 1' r{, i.! 1 '1'~ .1 71 rf it .{71f~' In'~ u' f4atP' ~ R i~ / l G Em 11) j ~ C) F ' f P 1 17 L EFm 1. { ~ d / nf,CSraal~ •,dl fi F $ / (44