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Item 6A - CIAC CommentsCapital Improvements Advisory Committee Of The City of Southlake Written Comments on the Impact Fee Process Submitted To the City Council December 6, ?007 Dear City Council: Introduction These comments are provided to comply with Chapter 395 of the local Government Code, which orItlille the p rocess and procedures necessary to initiate and update impact fees in Texas. As background, the City Cor11161 appointed the Planning & Zoning Commission P to Ffil ll the role and duties of the Capital Improvements Advisory Com in ittee CIAC , as allowed by law, since there is at least one representative of the real estate, development, or building industry who is trot an employee or official of the City. Orr charge illCkided the legal dUties of the CI C: The advisory committee serves in an advisory capacity and is established to: Advise and assist the political subdivision in adopting land use assumptions; * Review the capital improvements plaii and rile written comments; Monitor and evaluate implementation of the capital improvements plan; File senilanIlUal reports with respect to the progress ohlie capital improvements plan and report to the political subdivision any perceived inequities ill implementing the plan or imposing the impact fee; and Advise the political subdivision of the reed to update or revise the land use assumptions, capital inipr - o ements plan, and impact - lee, For the sake of brevity in this report, the corUIcil has been or will be fOrnislied the following inI' rmatioll: 0 The Land Use Assumption report prepared by City staff'. The water & Wastewater Impact Fee report prepared by Eddie C 11 eath aill, P, F, a lid Lew1s F McLain, Jr., Fiscal Planning Consultant, The Roadway Impact Fee report prepared by Kimley -Flora & Associates, ngineers- we will not atteinpt to restate the details of these reports or the fu I I con v ersations and issties discussed i11 OLIt A eetin s. Instead, OLW c01111IMit will b e re gar our observations of the process. w relied h eavi ly on the expertise of the City staff and consultants engaged to conduct these stUdies in compliance with state law. However, we individually and collectively made inquit'les of the Study Team and provided advice that was incorporated into the final reports. The particular highlights ol` oUr advisory duties are contained in these written comments being sent to you in advance of a public hearing on the Impact fee process and re UIts. t a e, Te as - CIA C' `� �rrr�r vit to iy �'alincil - ro ed e ember' , 07 - 'age I of 6 Observations and Advice Land Use Assumpti The land rise a sr1i11ptioi1 LU A) h ave beell Updated from the previous study. Tlie primary drivers of "the capacity In the c urrent and future Capital Improvements Plan CIP , population and employment growth, ai sii filar to those stninat s used in prior st We concur that these asSUmptions appear to be reasonable, Water and Wastewater C P The Water and Wastewater Capital Improvements Plan (CI P) was presented to LIS with an overview o the system design, th speeifiic projects located thrOtIghorrt the City and the cost details. The major Infrastru tUre faCIlItieS, SLICh as elevated stora tanl� , gl storage tanks and tr ansmission lines are sized fOl Ultimate needs since it is risrIally both UlleCO110mical and impractical to upsize tanks and transmission lidos once they are built, Therefore, most of water and Wastewater CIP decisions made in the past have established the c urrent plaii. However, the process of'systern sinig and the rationale for tank acid line locations was explained to us. Our c omments world be general observations that the natural geography of outhlak and past decisions appears to have resulted in a water and wastewater system that is sized to provide safe acid sufficient capacity to the City. , We did diSCLISS the cost e stimateS rased ill the pr'evioris S tud ies in light of'kno n cost for projects that have beeii built and expected costs for those remaining projects. The cost estimates iii prior StUdies have been replaced with 111LI 11 higher costs associated with the LIrr"ellt CII . The C011SUltants and taff' provid d us with some omparable actual costs for similar lines based on various lime sizes, We therefore oil ri1ry with the Cost estimates provided to ris, which resrIltod in a si ni ieamly hi revised cost of "the water and wastewater CIP than was ill the p r'eViOLIS stUdy. The most noteworthy information presented to LIs is that th a mount of w t er c onsumed an d, therefore, the amount o ftapacity needed in the water C IP is misiderably higher than in previous re ports. The i fee law allows us to incorporate these higher capacity costs into revised impact fee calculations.. This translates into a higher max1111L1111 Impact fee for water w hile the maximum Impact fee for wastewater is about the same as in previous reports„ Roadw ... Capita) I Plan T'he Roadway CIP presented us with a r at t challen i n the sense that many of the pro' is are those yet to be built, In the last study we had almost none of the Roadway CIP built. We now have about $18,455,00 built out of a $105,000,000 roadway CIP. It is a requirement that all projects on the roadway CIP also be on the Thoroughfare plan adopted by the City, and we rer s hown how the CIP is tied to the Thorouglif re Plan- The primary issues surrOUnding the Roadway CIP are when the projects are going to be built and how they may b pleased into the overa c on stru tion plans an d f nancin g capabilities o the City. We con cur w1th th Roadway CIP in terms of the needs to provide roadway improvements in Soutillake. We were briefed on an aspect ofthe Roadway CIP that merits a separate comilmit Iir 111 Us.. The Roadway CIP as well as the water acid Wastewater r CII have to be predicated m the Land Use ASSLImptions, as pi eviously mentioned. There is a distinct difference in the roadway system c ompared to the Utility systeill, however, that creates a different phenomenon to be mid rstood. The water acid Wastewater s ystem is a closed system that leas to tece( e the ab i lity f or growth to OCC rlr, B c losed, we mearl tha it servos Southl e resid ents and none other, And the Lit] Iity system has to - ec.ed the rowth iii that water and wastewat ser vices Ill Ust be ill place prior to the c onstruction of houses and b Those ritility services r not conducive to reliability or conveni n fluctuations for fire protect and general public health reasons., Hence, a ]at portion of tl� Water and Wastewater facilities has to be built in advance. oae, Te C Co m me nt s 'rr.ri - Ap D e c e m ber 6, 2007 - P o =1 In contrast. the roadway system is an olmn system tliat can la the s urge in orowth Tlie roadway system by its very nature is opm b ecause it serves a poprIlation greater tlian Soutlflake, It can hi y the growing demand t o a certain extent simply by being; deficient during the peak rises d1l'OrI I10LIt the day, 11ence, a roadway s ystem of some mininium nature suffices to a point in time. Dirt roa ds, , alien gravel r oads and alien two -lane roa designed with no slio lders and for light traffic are in place at the time growfli begins and can Handle most of' the daily travel demands except in the morning and afternoon periods wh en peak conditions exist, The penalties include traffic coming to a dead standstill and rerouted traffic distributed tlirou liorIt the roadway system by any means available. These are maj inconveniences but are 110t pr0i1or111ce p liealtll and safety i sLIes Until total gridlock is reached.. Tlie net result of these discrIssiOlIS, orir findings and the basis for these particular comments ill this yep focrIs oil the merits of the capital improvements i dentified in th C 1 . Tlie roadway C I P is large and expensive and leas to be built Can top of the ver passageways that ar a lready loaded with t r - ff lc These N leer cast i esnits make perfect sense to as in that a four -lane roadway that is replacing a frilly loaded two -lane roa dway is a com pletely different proposition than a new roadway that is crIt across an o pen field with no traffic considerations. We concur with the StUdy Team's points that we are recounting in our comments, brit the most convincing evidence is the personal validation we all experience and can acknowledge as SorItlllake citizens traversing the City- The previous study apparently initialized and validated the cost of the T1ioroLI Ilfare Ilan but assumed that not 111rIc11 construction to Ultimate standards would be implemented witliiii the first tliree years oftlie ten --year CIP. This . updated Roadway CIP, p on an accelerated growth plain in the commercial sector, pr esents a picture that changes even more dramatically over th next ten ,years. , we c011c r with the Study Team's justi l`ication that. the City needs to translate the T1101"oUglifare Plan into a multi - million dollar implementation schedule over the next ten ,years alone. T Roadway Impact Fee study is a by-product of a larger process tilat moves plans into tangible pr but is a reflection of that larger pracess. E g u i va lenc Tables The Equivalency tables are based oil the i of the apita i - enieias of a Sei 0i it, a c moon m easure placing all land LI e categories on an egUal or equivalent basis.. A water and Wastewater Service U leas been esta l islied to be a Shr gle Fcim y Lh7h7g Uni "juAwlew VL V #{ or a one -i ncli water meter. Roadway Service Unit is defined as a 1 le- 'Mile VA oftravel dLi1'ii1g th peak after - noon and evenin PM 11OLMs generated by various land LIse categories. A single- fimlly residential liouseliold generates no VM in the r evise d Roadway quivalency ta ble, an increase fto 3.03 VM in the p r evious StUdy, The WaMW M 7d Wasi ewatei equivalemy tables are based on the water meter size, These t are rooted ill engineering standards for the � eas red capacity of each � et r size iii rxelationsliip to a Single I�aj ily .,ivi��� Unit Equivalent FLUE , which have not changed., The basis for this equivalency table leas not clean ed since the original 1990 study and is consistent with the general equivalency tables around the region, according to the information we Dave been given by the Study Team and is found in the water and Wastewater Impact Fee Report. Therefore, we spent little time evalUating or discussing this egUivalency table and see no reason for recommend any changes„ "rhe R oatlwtry equivale y lables are based oil a professional standard produced by the Institute offraf'ic Engineers ( .., This manual leas been revised since the last study was con drIcted, so there was a need to reflect minor elianges in the roadway equivalency tables. The tidy `Team and the CI AC acknowledged the resulting product was fair and equitable and better represented the land use categories for Souffilaken we concur with the roadway egUivalency table as presented in the final report that leas been provided to the Council. outhlake, Texas - C IA Commcads to j? C"omicil - Appioved December -Page of Muni Study Costs The water, wastewater and roadway C P included eligible costs for the Financing and study components of the C1P. The addition of financing costs is based o a model used in p r evIOLIS studies that matches a theoretical stream of impact fee revenues over a ten-year period with expenditures for debt service r a 1 0- year period, The net reSL11t is influenced by interest rates as well as the a111 Or111t Of the total C1P that is bein Financed, r between % and % of"the cost ofthe capital, The valve of has been rased to slow eligible financing costs in order to be conservative. There is a small component of the eligible costs that include the impact fee study updates. These costs, as well as the financing cost assumptions, have been included in accordance to previous studies and appear to be reasonable, Acco We were presented with a suniniary of the accounting reports ofinipact fees collected, the interest earned, the allIOUI is s pent and the resu lfi1l balances fr om inception 1 990 for water and wastewater innpact f ees and 1996 for roadway Impact Fees through September 30, 2006.. An audit of the impact lees had b een condUcted as oftlat date.. The schedules indicate a compliance with the impact fee laws that stipulate that separate fUnds be provided for each off the Impact fee categories: water wastewater and roadways. They also s low that interest has been earned ft the invested monies and that those interest earnings are properly credited to the individUal funds, Impact fee funds have been spent for water, wastewater - , and roadway improvements that are in accordance with the elicibility prescribed *n the impact fee laws. That is, they must be spent on �crl itcr pi �c�ls shown on the adopted capital improvement lists or o c�C� t :,see - vice related to bolds issued for those e ligible p Certain stUdy costs are also eligible, we have relied on representations made by the Study Team, and the accounting reports indicate that the impact fee programs have been an integral part of the financing program fir water' and wastewater projects in recent ;years. Tile roa dway im act fee monies collected are mostly still oil hand a are available to b e applied to the debt service f or the program shown old the prevloLIsly adopted C IP and will be used for the amended and expanded CIP made part of this 2007 update, Due to the importance of the impact fees in terms of financial suppoft coupled with the potential for the annual collections of fees to fluctuate with economic conditions, we were advised by the Study Team that the City generally follows the policies reflected in the calculation of the Ma inIL1 Impact Fees. That is, while some of the impact fee monies can be and have been spent directly on a capital project, the largest portions of the rnonies are used to offset the debt service payments resulting from the iSSUan e o f'debt on financed projects.. The f nancing o pr.o,�eets is generally a r�ec�uirement since impact fees pay only a portion of the total cost f� projects, and projects have to be built In advance oHiavin su fi c Ient f ees on l and t build complete projects. For exam pl g o t projects serve a significant p ortion of the existing popUlation, which is an ineligible portion ofthe capital projects other than impact fees that have been collected in the past. Tile other r - eason for maintaining a reasonable fund balance is that economic conditions could cause a sudden and rapid drop in impact fee collections. Therefore, it Is the City's policy to use impact f ees mostly for debt service and only to the extent that those funds are on hand at the be i n n I ng of the budget year so that tax and utility I °ate payers can be provided a stable stream of'debt service cost reduction even during years of fluctuating collections.. We concur with the inf or mation we have been g iven as being; reasonable and representative of th responsible driciar policies of the City. outhla c, Texas - CI C Comments to Gly Council -• Approved December 6, 20 - Page 4 of M xi i i and Collected I t Fees O ur orientation by the Strrdy Tearer included are explanation of three different levels of impact fees: Maximum, EqUilibrium and Collected Impact lees. LIT comments will address all tliree. l i.vinnun mI)t t F ee-% are those developed in accordance witli the statutory requirements imposed on g overnments developing and clear inn impact fees. - r iie Ma I111LJ111 lrlipact Fee that can be clear ed is the result of dividin g tree c.o I q the c° tj3(icit projected to be absorbed over a ten -year" period (tl r� lmer�ator by the i e nit i - oject � t o e added d ur) ng that same ten - year per 1 o th d enom inator . Tlie S ery ice U 1 its leave to be based on the LUA report.. The task of the CIAC is to review the methodology used to arrive at the numerator and denominator, wlileli we leave done. The calculation then becomes legal are lu etic, The result is not our's to change L111leSS We leave found a reason to advise a clean e in the r ethodolo y and assur��ptlolls used to derive the numerator and denominator, Since we w ere made part of the process that eval ualeti and emii sheil3ed fhe met c (lolog y for arriving at the 11Llnierator and denominator, we concrrr w1tl1 the ca lcrrlated Maximum Impact Fee, It is required that these fees be published in advance of a public hearing for water, wastewater a nd each of'tlie three roadway service areas. Tlie qu ibi - hun 'ryes are a reduction of the Ma inium Impact Fees necessary to j�eco ni e a condition that exists but were not legally required c lculatior1s r111til 200.E alter orrl' pre iorrs study was implemented. Tlie Study Tearn informed us that are original part of'the enabling impact fee legislation passed in 1987 (arid effective as of 1990) was to calculate the cost ofserving a Service Unit. The developer - initiated bill S -3 pushed for a reduction ire the calcrrl ate d cost to recogn i e that a portioti of the cost foe neii) gr -olr1t r mfiwslnicfwI e" i s pail M the of -m of lax acid uli i y ills -. The Study Team concurs w itli that general argument and leas established from previous analyses that the portion oftlie capital paid by new taxpayers and ratepayers ranges from -35 %.. Absent a methodology, the new impact fee law alloWs LIS to present an analysis toJu tify a discoUnt less th an 0 of the previously allowed maxir11r1r11 impact fee. An impact fee payer tlirou h their builder pays are Im pact fee followed by tax and utility bills as soon as six - niontlis later. Tlie utility bills include a component for dent service related to capital projects built to serve both existing rid new growfli, To charge 100% o# the cost ofcapital in the form of are impact fee and alien to pay tax and utility b that includes the cost of capital fqc ciIities for the exist] 11g popr.Ilatiorl could result in a double - charging condition. Therefore, the Study Team presented LIs wi th an Equilibrium F ee that is 0% of the calculated Maximum Impact Fee. We have no disagreement with t1lis proposition, yet we recognize that it extends to the policy area reserved for the City Council and beyond the current legal requirement to calculate a MaxiMr1111 Impact pee, w a reduction for payments made by ILrture tax and rrtility payers. Tlie issue, lio wever, is W01111y of our comment, since it is a related ratter presented to LIS for our edrrcat benefit and extends to your policy Formulation area.. Tl)e Collected ImI i 4t Fe is that amount, wh en said and done is the check that leas t o b e writt by the builder when paid to the City. The ityts CL111 - ClIt collection fees are as follows: o Water Collected Impact bee - $1,895,41 per SFL. . 1" Meter) o Wastewater Collected Impact pee - $1,181.40 per SFLUE, o Roadway Collected Impact Fee - $ 1,496 per, SF residential Unit or $493.62 per AIM Tile Study Team provided us information that can be found in the material you leave been provided to show that setting the impact fees at 0% oftlie revised Maximum Impact Fees will produce a fairly significant increase in impact fees for most of tlic new ;rowtli in Soutlilake . W e were also informed that every mtjn1cipaI w1ioIesaIe w ater C a to[lier served by the C 11 f ) 141orih leas to pay a I&e ft)r li ecamew p1cutt cmd t •c r s�# ri.s r r �r `i r'c . (aka a "w1iolesale system access l e") for each ne retail water crrstOmer that connects to the City water system. That means that irrespective of the Collected Impact Fee level the Co ncil sets, there is currently a Fort Worth pass - through fee of'$1, (for a 1" i tem) Soutlllake, Texas - CIAC Commenift to Qy Couticit - Approved December 6,2 - Page 5 o '6 and there is potential for continued increases in the future, This fee will add to the financial burden ofthe new g rowth yet will only be a pass -thru and of' Mao benefit to the City Of SoLrthkIke, Cur purpose for mentioning it i s to serve as a reminder a as In formati on made part of our orientation lastly. it is clear to the C�IA.C� that there is no legal obli ation to recommend a Collected Impact Fee level, When asked how other cities establish their Collected Impact Fees, the Strrdy Team informed us that every city arrives at tl e decision dif er��ently but ni st str'�ike a balance irlflrrenced y the cost in rmatioi� ire the studies andjUst as persuasive, by the fees charged by Surrounding COMM Lill ities and by a knowledge of what might b e considered tolerable by the local development community since the Collected Fee level is largely a market sensitive decision. We therefore concluded that the C I AC sh uId not ofrer a specific recom mendati on, leav1ng that policy decision rip to the City Council., It is apparent to us that we would want a considerable allI trr1t oH11l'orr atiOn in order to provide a recommendation, if regcrested to do so by the City C OMICII.. If the decision is market based, then area surveys and a working kliowled ;e of the tolerable 11i nits of the local developer community are factors that the Cor,11161 reeds little or no assistance other than what the staff nilg ht provide. It does strike rrs that there is a f e level that, when approached or surpassed, has a bearing on real estate and development costs even in a reasonably affl uent community sr,rc h as Southla e„ We believe that if a decision by rrs is to be made regarding the Collected Fee level, that we would require a considerable amount of time and study to understand the elasticity of the economic influence of impact Fees ill SOLIthla e as well as other cost factors that might shape a policy decision such as this, Conclusion • We as a Capital Improvements Advisor':}' C:onu ittee believe we [lave fti illed orrF char e by thOFOLIghly exploring the underlying as urliptions and Factors that went Into the development of the Land Use A,ssLrMptiolIs, Capital Improvement Plans and other technical and 1111ancial issues. We believe that the L Ak, C IP and resulting calculated Maximum Impact Fees were developed fairly and equitably with a balance for what is defensible to both the developer community and OLIF residences and businesses in Southla e, We therefore, file these written comments as a part ofthe final stage of this very public process as the COL1116 dears fro111 rrs as their Advisory Coin in ittee, - om the Study Team as the aut1101 of the reports and as any member ofthe public collies forward to voice all opir1ior1� It is our Understanding that these technical r eports will be available to the public at least 30 days in advance of'the public hearing. we c011clrrde that this has been are open process, since all ofour meetings have been posted and available to any member of the public, And for the record., the minrrtes of lI our meetings have been srII plied to you as part ofthe doCUmentation for this process. Submitted y: Chair, Capital Improvements Advisory Conimittee C ta on the ( of AP PROVED Y a majority vote of the C Impr ovements Advisory .. a , zoo Southlake, Texas - CIAC Comments to Ci y Comicif - Approved Deceinber 6,.2007 - Page 6 o '6