Item 7A - CIAC CommentsCapital Improvements Advisory Committee
Of The City of Southlake
Written Comments on the Impact Fee Process
Submitted To the City Council
December 6, 2007
Deal City Council:
Introduction
These comments are provided to comply with Chapter 395 of the Local Government Code, which outlines
the process and procedures necessary to initiate and update impact fees in Texas As background, the City Council
appointed the Planning & Zoning Commission (P &7_) to fulfill the role and duties of the Capital improvements
Advisory Committee (CIAC), as allowed by law, since there is at least one representative of the real estate,
development, or building industry who is not ail employee or official of the City. Our charge included the legal
duties of the CIAC:
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 plan and file written comments;
• Monitor and evaluate implementation of the capital improvements plan;
• File semiannual reports with respect to the progress of the capital improvements plan and report to the
political subdivision any perceived inequities in implementing the plan or imposing the impact fee;
and
• Advise the political subdivision of the need to update or revise the land use assumptions, capital
improvements plan, and impact fee.
For the sake of brevity in this report, the Council has been or will be furnished the following information:
• The Land Use Assumption Report prepared by City staff.
• The Water & Wastewater Impact Fee Report prepared by Eddie Cheatham, P,E., and Lewis F.
McLain, ,lr., Fiscal Planning Consultant,
The Roadway Impact Fee Report prepared by Kimley -Horn & Associates, Engineers..
We will not attempt to restate the details of these reports or the full conversations and issues discussed in
our meetings. Instead, our comments will be regarding our observations of the process. We relied heavily 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 inquiries of the Study Team and provided advice that was
incorporated into the final reports. The particular highlights Of 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 results.
Southlake, Texas - CIAC Comments to Clt) Council - Approved December 6, 2007 - Page I of 6
Observations and Advice
Land Use Assrniptions
The land use assumptions (LUA) Dave been updated from the previous study Tire primary drivers of the
capacity in the current and future Capital Improvements Plan (CIP), population and employment growth, are
similar to those estimates used in prior studies. We concur that these assumptions appear to be reasonable.
Water and Wastewater CIP
The Water and Wastewater Capital Improvements Plan (CIP) was presented to its with an overview ofthe
system design, the specific projects located throughout the City and the cost details. The major infrastructure
facilities, such as elevated storage tanks, ground storage tanks and transmission lines are sized far ultimate
needs since it is usually both uneconomical and impractical to upsize tanks and transmission lines once they
are built. Therefore, most of Water and Wastewater CIP decisions made in the past have established the
current plan. However, the process of system sizing and the rationale for tank and line locations was
explained to us. Our comments would be general observations that the natural geography of Southlake and
past decisions appears to have resulted in a water and wastewater system that is sized to provide safe and
sufficient capacity to the City.
We did discuss the cost estilrrates used in the previous studies in light of known costs for projects that have
been built and expected costs for those remaining projects, The cost estimates in prior studies have been
replaced with much higher costs associated with the current CIP. The consultants and staff provided us with
some comparable actual costs for similar lines based oar various line sizes. We therefore concur with the cost
estimates provided to rts, which resulted in a sigirificantly higher revised cost of the Water and Wastewater
CIP than was in the previous study.
e Tire most noteworthy information presented to us is that the amount of water consumed and, therefore, the
amount of capacity needed in the water CIP is considerably higher than in previous reports. Tire impact fee
law allows us to incorporate these higher capacity costs into revised impact fee calculations. This translates
into a higher maximrnn impact fee for water while the maximum impact fee for wastewater is about the same
as in previous reports..
Roadway Capital Improvements Plan
The Roadway CIP presented us with a greater challenge in the sense that many of the projects are those ,yet to
be built In the last study we had almost none of the Roadway CIP built. We now have about $18,155,000
built out of a $105,000,000 Roadway CIP. It is a requirement that all projects oil the Roadway CIP also be oil
tine Thoroughfare Plan adopted by the City, and we were shown how the CIP is tied to the Thoroughfare Plan -
The primary issues surrounding the Roadway CIP are when the projects are going to be built and ]low they
may be phased into the overall construction plans and financing capabilities of the City, We concur with the
Roadway CIP in terms of the needs to provide roadway improvements in Southlake.
We were briefed on an aspect of the Roadway CIP that merits a separate comment from us. The Roadway CIP
as well as the Water and Wastewater CIP have to be predicated oil the Laud Use Assumptions, as previously
mentioned: There is a distinct difference in the roadway system compared to the utility system, however, that
creates a different phenomenon to be understood. The Water and Wastewater system is a closed system that
has to precede the ability for growth to occur. By closed, we mean that it serves Southlake residents and none
other: And the utility system has to precede the growth in that water and wastewater services must be in place
prior to the construction of houses and buildings. Those utility services are not conducive to reliability or
convenience fluctuations for fire protection and general public health reasons: Hence, a large portion of the
Water and Wastewater facilities has to be built in advance.
Southlake, Texas - CIAC Connizents to City Council - Approved L7ecenrbei b, 2007 - Page 2 of 6
In contrast, tiie roadway system is a ll open system t hat can lad; the surge in growth Tile roadway systern by its
very nature is open because it serves a population greater than Souti3lake. It can lag the growing dernand to a
Certain extent simp by being def icient durin the peal; uses dirougliout the day. Hence, a roadway system of
some minimum nature suffices to a point in time. Dirt roads, then gravel roads and then two -lane roads
designed with no shoulders and for light traffic are in place at the time growth begins and can handle most of
the daily travel demands except in the morning and afternoon periods when peak conditions exist. Tine
penalties include traffic corning to a dead standstill and rerouted traffic distributed tlrroughout the roadway
systern by any means available. These are major inconveniences but are not pronounced public healtli and
safety issues until total gridlock is reaclied
The net result of these discussions, our findings and the basis for these particular comments in this report
focus oil the merits of the capital improvements identified in the CIP. The Roadway CIP is large and
expensive and has to be built on top of the very passageways that are already loaded witli traffic. These liiglier
cost results make perfect sense to us in that a four -lane roadway that is replacing a fully loaded two -lane
roadway is a completely different proposition than a new roadway tilat is cut across an open field with no
traffic considerations.. We concur witli the Study Team's points that we are recounting in our comments, but
the most convincing evidence is the personal validation we all experience and can acknowledge as Soutlilake
citizens traversing the City Tile previous study apparently initialized and validated the cost of the
Tliorouglnfare Plan but assumed that not muCli construction to ultimate standards would be implemented
within the first three years of tiie ten -year CIP. This 2007 updated Roadway CIP, predicated oil an accelerated
growth plan in the commercial sector, presents a picture that clianges even more dramatically over the next
ten ,years.. We concur with the Study Team's justification that the City needs to translate the Tlioroughfare
Plan into a multi - million dollar implementation scliedule over the next ten years alone. The Roadway Impact
Fee study is a by- product of a larger process that moves plans into tangible projects, but is a reflection of that
larger process.
Eguivalency_Tables
The Equivalency tables are based oil the relationship of the capital i of a Sei - vice Unit, a common
measure placing all land use categories o an equal or equivalent basis. A Water and Wastewater Service Unit
lids been established to be a Single Family Living Unit rlllliVale111 (SFL.UE) or a one -incli water meter. A
Roadway Service Unit is defined as a Vehicle -Mile (VAi) of travel dtn ing the peak afternoon and evening
(PM) hours generated by various land use categories. A single- family residential houseliold generates 4 -04
VM in the revised Roadway Equivalency table, all increase front 3.03 VM ill the previous study.
The Water and Wasteinatei equivalency tables are based on the water meter size, These tables are rooted in
engineering standards for the measured capacity of each meter size in relationship to a Single family Living
Unit Equivalent (SFLUE), whicli leave not clianged. The basis for this equivalency table has not clianged
since the original 1990 study and is consistent witli the general equivalency tables around the region,
according to the information we leave been given by the Study Team and is found in the Water and
Wastewater Impact Fee Report.. Tlierefore, we spent little time evaluating or discussing this equivalency table
and see no reason for recommending any clianges
Tile Roaclwt�jy equivalency tables are based on a professional standard produced by the Institute of Traffic
Engineers (IT E.),, This manual leas been revised since the last study was conducted, so there was a need to
reflect minor changes in the roadway equivalency tables. The Study ream and the CIAC acknowledged the
resulting product was fair and equitable and better represented the land use categories for Soutlilake_ We
concur with the Roadway equivalency table as presented in the final report that has been provided to the
Council.
Soutlilake, Texas - CIAC Comments !n City Council - Approved December G, 2007 - Page 3 of 6
Financing 1 Study Costs
The Water, Wastewater and Roadway CIP included eligible costs for the financing and study components of
the CIP. The addition of financing costs is based on a model used ill previous studies that matches a
theoretical stream of impact fee revenues over a ten -year period with expenditures for debt service over a 20-
year period. The net result is influenced by interest rates as well as the amount of the total CIP that is being
financed, ranging between 25% and 34% of the cost of the capital% The value of 25% has been used to show
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,
Accountinj_Reports
• We were presented with a summary of the accounting reports of impact fees collected, the interest earned, the
amounts spent and the resulting balances fi onl inception ( 1990 for Water and Wastewater impact fees and
1996 for Roadway Impact Fees) through September 30, 7006. All audit of the impact fees had been conducted
as of that date.
• The schedules indicate a compliance with the impact fee laws that stipulate that separate funds be provided
for each of the impact fee categories: water, wastewater and roadways. They also show that interest has been
earned from 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 eligibility prescribed in the impact fee laws. That is, they must be spent on CQf)ilcd pi`c)jG'as Shown on
the adopted capital improvement lists or oil debt ,.sei related to bonds issued for those eligible projects,
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 all integral part of the financing; program
for water and wastewater projects in recent years. Tire roadway impact fee monies collected are mostly still
on hand and are available to be applied to the debt service for the program shown oil the previously adopted
CIP 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 support 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 Maximum 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 monies are used to offset the debt service payments resulting from the issuance of debt on financed
projects. The financing; of projects is generally a requirement since impact fees pay only a portion of the total
cost of projects, and projects have to be built in advance of having sufficient fees on hand to build complete
projects. For example, most projects serve a significant portion of the existing population, which is an
ineligible portion of the capital projects other than impact fees that have been collected in the past. The other
reason 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 fees mostly for debt service and
only to the extent that those funds are on ]rand at the beginning, of the budget year so that tax and utility rate
payers can be provided a stable stream of debt service cost reduction even during years of fluctuating
collections We concur with the information we ]rave been given as being reasonable and representative of the
responsible fiduciary policies of the City.
Southlake, Texas - CIAC Comments to City Council - Approved December 6, 2007 - Page 4 of 6
Maximum, Ecluilibrium and Collected Impact Tees
• Our orientation by the Study Team included an explanation of three different levels of impact fees:
Maximum, Iquilibriurn and Collected [nrpact Fees. Our comments will address all three.
Afcrvinnun Impact Feces are those developed in accordance with the statutory requirements imposed on
governments developing and charging impact fees. - file Maximum Impact Fee that can be charged is the result
of dividing the cost of the ccrlwicil projected to be absorbed over a ten -year period (the numerator) by the
Sei Units projected to be added during that same ten -year period (tire denominator), The Service Units
have to be based on the L.UA report. The task of the CIAO is to review the methodology used to arrive at the
numerator and denominator, which we have done.. The calculation then becomes legal witlurletic. The result is
not ours to change unless we have found a reason to advise a change in the methodology and assumptions
used to derive the numerator and denominator, Since we were made part of the process that evalualetl and
even shaped the methodology for arriving at tine numerator and denominator, we concur with the calculated
Maximum Impact Fee. It is required that these fees be published in advance of a public hearing for water,
wastewater and each of the three roadway service areas.
Tire Equilibr•irnn Fees are a reduction of the Maximum Impact Fees necessary to recognize a condition that
exists but were not legally required calculations until 2002 after our previous study was implemented. The
Study Team informed rrs that an original part of the enabling impact fee legislation passed in 1987 (and
effective as of 1990) was to calculate the cost of serving a Service Unit. The developer- initiated bill (SB -336)
pushed for a reduction in the calculated cost to recognize that a portion ref the cost for° Wert gr -owth
in&strrrcture is paicl in the for - in of tax acrd Wilily bills The Study Team concurs with that general argument
and has established from previous analyses that the portion of the capital paid by new taxpayers and
ratepayers ranges from 25 -35 %. Absent a methodology, the new impact fee law allows us to present an
analysis to justify a discount less than 50% of the previously allowed maxinrrurl impact fee.
An impact fee payer (through their builder) pays an impact fee followed by tax and utility bills as soon as sir -
months later, The utility bills include a component for debt service related to capital projects built to serve
both existing and new growth. To charge 100% of the cost of capital in the form of an impact fee and then to
pay tax and utility bills that includes the cost of capital facilities for the existing poprclation could result in a
double - charging condition. Therefore, the Study Team presented us with an Equilibrium Fee that is 50% of
the calculated Maximum impact Fee. We have no disagreement with this 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 Maximum Impact Fee, without a reduction for payments made by future tax and utility payers. The issue,
11OWeVe1 ", is worthy Of Our comment, since it is a related matter presented to us for our education benefit and
extends to your policy Formulation area.
• The Collected Impend Fee is that amount, when said and done, is the check that has to be written by the
builder when paid to the City. The City's current collection fees are as follows:
• Water Collected Impact Fee - $1,895.41 per SFL,UE (1" Meter)
• Wastewater Collected Impact Fee - $1,181,40 per SFLUE,
• Roadway Collected Impact Fee - $1,496 per SF Residential Unit or $493.62 per VM
The Study Team provided us information that can be found in the material you have been provided to show
that setting the impact fees at 50% of the revised Maximum Impact Fees will produce a fairly significant
increase in impact fees for most of the new growth in Southlake
We were also informed that every municipal wholesale water customer served by rile Cily cif Fort 1 , 1 4 61 , 1h has
to pay a fGe for li eattnew platy cnrrl tr °cursnnris sinnr facilities (aka a "wholesale system access fee' ") for each new
retail water customer that connects to the City water system. That means that irrespective of the Collected
Impact Fee level the Council sets, there is currently a Fort Worth pass - through fee of $1,536 (for a I" meter)
Soutlllake, Texas - C1AC Conunenis to City Council - Approved December 6, 2007 - Pale 5 of 6
and there is potential for continued increases in the future. This fee will add to the financial burden of tire new
growth ,yet will only be a pass -thru and of no benefit to the City of Southlake. Our purpose for mentioning it
is to serve as a reminder and as information made part of our orientation
Lastly, it is clear to the CIAO that there is no legal obligation to recommend a Collected Impact Fee level.
When asked grow other cities establish their Collected Impact Fees, the Study Team informed its that every
city arrives at the decision differently but most strike a balance irrfluerreed by the cost information in the
studies and, just as persuasive, by the fees charged by Surrounding COMM Lill ities and by a knowledge of what
alight be considered tolerable by the local development community since the Collected Fee level is largely a
market sensitive decision.
We therefore concluded that the CIAC should not offer a specific recommendation, leaving that policy
decision up to the City Council. It is apparent to us that we would want a considerable arrrourrt of inforrnatiorr
in order to provide a recommendation, if requested to do so by the City Colurcil. If the decision is market
based, then area surveys and a working knowledge of the tolerable limits of the local developer community
are factors that the CorrIrcil needs little or no assistance other than what the staff might provide. It does str ike
us that there is a fee level that, when approached or surpassed, has a bearing; on real estate and development
costs, even in a reasonably affluent cornmurrity SLIClr as Southlake.. We believe that if a decision by us is to be
made regarding the Collected Fee level, that we would require a considerable ainOlnrt of time and study to
understand the elasticity of the economic influence of impact fees in Southlake as well as other cost factors
that might shape a policy decision such as this
Conclusion
• We as a Capital Improvements Advisory Committee believe we have fulfilled our charge by thoroughly
exploring the underlying assumptions and factors that went into the development of the Land Use
Assurrrptiorrs, Capital Improvement Plans and other technical and financial issues.
• We believe that the LUA, CIP and resulting; calculated Max.inrum Impact Fees were developed fairly and
equitably with a balance for what is defensible to both the developer cornmurrity and our residences and
businesses in Southlake
We therefore, file these written comments as a part of the final stage of this very public process as the Council
hears from us as their Advisory Committee, from the Study Team as the authors of the reports and as any
member of the public comes forward to voice an opinion. It is our Understanding that these technical reports
will be available to the public at least 30 days ill advance ofthe public hewing. We conclude that this has
been an open process, since all of out meetings have been posted and available to any member of the public,
And for the record, the minutes of al l our meetings have been supplied to you as part of the doclrm errtation for
this process.
Submitted By:
Chair, Capital Improvements Advisory Committee
APPROVED BY a majority vote of the Capital Improvements Advisory Committee taken oil the (,� Tµ of
p pCQwJog SOD
Southlake, Texas - CIAC Comments to Qy Council - Approved December 6, 2007 - Page 6 of 6