8.3 SR 02-06-2023 - Laserfiche WebLink

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5.2 Funding Options The City has historically assessed property for trunk extensions and lift stations on a per acre basis as property develops. Because the northeast and northwest expansion areas create unique challenges for assessing property owners, we have explored alternative funding mechanisms to fully recover the cost of the projects from development as it occurs. These funding alternatives include special assessments, trunk area charges collected when land is platted, and SAC fees collected with building permits. Special Assessments. The City may levy special assessments against benefitting properties for 100% of the cost of the improvements at the time the improvement is installed, as long as the City can establish benefit. The assessments are secured against the property and paid with property taxes, making them a very reliable revenue source for the City. They may be prepaid and are usually paid in full when land is sold. Because special assessments increase the holding cost of undeveloped property, the use of assessments can encourage properties to develop and connect to the water and sanitary sewer systems. The difficulties in assessing the northeast and northwest expansion areas include: 1) There are a significant number of existing residential properties with well and septic in the area. Some of these are on very large lots and, if assessed on a per acre basis, these households will pay a significant amount to connect to utilities. 2) The areas have a decades-long development horizon. Infrastructure installed today to reach and serve these areas may not be fully utilized for another 10-20 years. In addition, since the infrastructure will be phased, some property may be assessed for a major lift station, for example, before the trunk line is extended to serve the property. Property will need to be assessed several years in advance of being able to hook-up to utilities. One potential solution to this is to defer the special assessments until a property develops. Trunk Charges. Trunk charges are collected when land is platted and the development pattern is known. They can be charged based on net developable acreage or on the projected number of SAC units expected to be developed on the property. One advantage to trunk charges is that they can be tied to the actual density of development. Typically, there are higher trunk charges for commercial/industrial and multi-family uses than single family uses as these higher density land uses require larger trunks and lift stations. If the trunk charges are based on the expected SAC units instead of acreage, a large-lot existing home would just pay for one connection. If the homeowner later sold a portion of their lot for development, additional trunk charges would be collected. The disadvantage of trunk charges is that the City will not be reimbursed for its capital investment until land is platted for development. The projects will be largely financed, so that repayment can be aligned with anticipated development. However, if development occurs more slowly than anticipated, the City will need to rely on other revenues. For the sewer utility, the City can look to sewer user charges. However, since the City does not operate its own water utility, it may need to negotiate higher water rates with the ERMU to help pay the debt service on the water revenue bonds if development gets delayed. Ultimately, the City may need to rely on property taxes if development is delayed significantly. Trunk charges may be assessed if the landowner agrees to it. Availability Charges (WAC and SAC). ERMU currently charges a WAC fee of $3,990 per plumbing unit when a building permit is pulled. The City of Elk River currently charges $5,769 per SAC unit when a building permit is pulled. This SAC fee pays for debt service on the wastewater treatment plant and other sewer improvements associated with expanding the system to serve growth. ERMU and the City could add a separate SAC fee for the Northeast and Northwest Areas, respectively, that would pay for the improvements that specifically serve those areas. Alternatively, the City could increase the existing SAC fee paid by all developing properties in the City. The advantages and disadvantages of the SAC fees are similar to those for the Trunk Charges. The advantage is that the precise development is known, and the charge very accurately reflects the property use. Developers prefer SAC fees over trunk charges because they have their construction financing in place to pay for them. Feasibility Report Northeast & Northwest Urban Service Area Expansion Study City of Elk River, MN WSB Project No. 020010-000 Page 23