City Commission - Regular Meeting

Thank you, mayor. Thank you, commissioners. We really appreciate the time today. Thank you for the opportunity to talk a bit about the infrastructure sales tax extension and and just give you an update on where we're at and and also talk about our future discussion points that we'll have with the city commission and and so we just again really appreciate you being here and and making the time for this, but really wanted to continue that discussion today about the Fargo sales tax extension for infrastructure. Really what we're talking about is the future of uh Fargo's foundation. And by that we mean our roads, our water, our sewer system. Really the most important takeaway we have today is that this is not a new tax. Uh this is simply an extension of an existing uh tax and one that has been really really important uh for Fargo for the last 20 years. and it's one that this proposed extension will continue to do lots of good work uh for the citizens of Fargo and the businesses of Fargo. We don't want to have any kind of gap in our essential services and our gap a gap in projects that we've been able to deliver for the residents and the businesses for the last couple of decades. And so we're not just talking about uh this year. We're really planning for our future and our needs to provide for safe and reliable infrastructure again to these residents businesses and importantly to our visitors. you know, our visitors to Fargo also, uh, participate in a way in the sales tax with the, uh, the funding and the rehabilitation of these systems. And so, uh, today we're going to talk about that kind of long range planning, that long range analysis, and then give you a snapshot of some of the things that we want to be doing in the next 20 years with the sales tax extension if approved by the voters. Uh, just by way of example, engineering alone, you think about our department in engineering, we're programming out on a four-year horizon line. Uh that is something that we think is a real strong attribute of of Fargo's team is really planning for the future and really thinking about what it is uh we need to do. So our presenters today you're going to hear

from our our technical teams. I'm Tom Nakmoose our city engineer, Troy Hall, our water utility director, as well as Jim Hassau our our water reclamation or wastewater utility director. And so in each of these presentations, you're going to hear and and see as well uh their respectful uh or respective technical knowledge and expertise, but there's a lot of passion, there's a lot of dedication within our technical teams for delivering the absolute best that we possibly can uh for Fargo. And you're going to hear that, you're going to see that in some of the slides that they're going to present today. But this is really about safety. It's about reliability. And it's about positioning Fargo for the in the best possible way we can for the future. And our team is one that really cares. It's a team that uh is happy to jump in, happy to serve the citizens of Fargo, and I really want to thank them for all of their efforts, all of their work every single day. They have great teams behind them, but you're going to hear lots of great great things from them today. So, our agenda today, uh we certainly want to start uh first with the history of the funding and our future needs to continue to provide safe and reliable infrastructure. And perhaps most importantly, uh we also want to talk about the financial impact uh on our residents as well as our businesses if the extension is not successful. Um I'm going to come back. I'll kind of close with a summary on the proposed next steps, but we're going to make sure that we pause as we're at the end of each of the utility presentations to make sure that each each section is covered uh uh carefully and thoroughly so that you get an opportunity to receive that information in as clear of a way as possible. Um, so this is the language. This is the infrastructure sales tax purpose. Uh, transparency is really key and as you can see, uh, these funds are legally restricted to core needs in the city of Fargo. Uh, they are in fact strictly dedicated to streets, water supply, water treatment, sewage, and flood control, ensuring safe and reliable infrastructure. So, we put this language here just to illustrate for you that there isn't a lot of gray here. This says exactly what we're to do, and this

is exactly what we have done over the last 20 years. and and the things that we want to keep doing here in the city of Fargo well into the future. So, this is just a sales tax summary. Uh, in the city of Fargo, we know that cost of living matters and we know that our our Fargo local tax rate of 2.25% is comparable to other large cities in North Dakota. Our local tax is comprised of 1% for flood control, a quarter cent for public safety, and a 1% infrastructure tax, which will all be discussed today. So this slide shows you in totality what that looks like. A yes vote for the infrastructure sales tax maintains where we're at today and it's one that positions Fargo for the future and our future success. But this just gives you that kind of summary at a high level of where we're at and what we look like. Um when we look at our our sales tax and where it comes from, we know that we are an economic hub. We are a region uh in our our kind of part of North Dakota that we support thousands of visitors on our roads. We support thousands of employees that are working uh for our industries and our businesses in Fargo. And these utility systems are really u really really well well supported by our residents, but they also are heavily relied upon by the people not only within Fargo, Morehead, West Fargo, but also a trade area that as you can see contributes significantly not only to the wear and tear in the facilities and on our our utilities and our systems, but it's really something that uh really has to be supported by a larger regional conglomerate. We're really proud of that because when you think about it and you step back, we're be able to get a lot done with a lot of participation from a lot of people. So, it's an intuitive tax. It's one that's made a lot of sense over time. But most importantly, that wear and tear then doesn't fall solely on the shoulders of the Fargo residents and businesses. And we think that that's a very, very important feature. In fact, we believe is the only tool that allows us to

spread that cost to as many people as possible who are contributing uh to that wear and tear uh while supporting the economic hub, supporting the economic vitality of the Fargo metro area. So, where does the sales tax come from? You know, how is it funded? Uh in 2025, this penny tax generated approximately $34 million uh to the core infrastructure. Uh this benefited all areas of Fargo, not just growth, not just localized areas. The funding touches nearly every neighborhood, every road, every bit of water and sewer repair and infrastructure citywide. And so you're going to see this illustrated in a future slide. So from north to south, east to west, from the Broadway uh of project to the north all the way to the southwest area where we were just this morning meeting with the chamber at I Bailey, we've touched really every single corner of Fargo. And so I just share that we are everywhere with the sales tax and it's not just localized only to downtown, only to North Fargo, only to South Fargo. It is in fact everywhere. So with that uh we will start first with a conversation about Fargo streets. We'll have Tom Nachmoose speak to that. When I close at the end I also want to talk about where we are relative in Fargo to other major cities in North Dakota. What we do in Fargo is not unique in terms of rate. Uh we are not uncommon in how we fund infrastructure. We're utilizing that sales tax. And so when we come back I'll summarize that in the closeout. But please know that you've been uh you've been well cared for in the stewardship of these dollars over the last two decades and we want to keep that progress going. So with that, I'll turn it over to Tom who will talk about streets. Then we'll go to Troy and Jim after that. Thank you.

Good afternoon. First want to talk about uh pavement and how we measure the quality of our pavement. So pavement condition is measurable and so uh the way in which we do that uh all city streets are driven by a specialized vehicle. uh that vehicle has multiple sensors that measure the quality of the ride and the pavement condition index. Uh there's a standard that's used across the industry for this to be sure that we are considering uh apples to apples not apples and oranges. Uh and so uh we've done the survey a number of times but most recently in 2017 2021 and again 2025. Uh we have not yet received the data uh from our 2025 survey uh but hoping to get that relatively soon. So the way we do that is we we calculate a pavement condition index uh by calculating or capturing uh the distress type, the distress quantity and the distress severity. Uh all those things factor into a pavement condition index which ultimately gives us a score. Uh and then that score can kind of be uh broken out into different um categories of of pavement quality. And I'll give you a couple examples of that. So here would be an example of a roadway that is uh poor condition. And so, um, rating a 45 PCI, uh, you can imagine yourself driving down that street. Uh, you're likely going to feel a number of those, uh, potholes along there. Uh, the ride might not be very comfortable. Um, but again, that that's what a typical 45 might look like. So, in that range, typically, uh, within our industry, less than 40 is considered failed. Uh, that pavement is failed. And so, this is getting pretty close to that point. And so, we really have two options at a PCI rating of 45. uh we could do a major rehab which would be a considerable investment in something like this or sometimes it is a wait and let it completely fail before we reconstruct. Um and and those are some of those scenarios that we look at commonly uh amongst our roadway system. Here's a

better example of of what we hopefully have around our our uh city. Um so this is at an 81 and the reason why it's not 100 it looks really good uh you can see a transverse crack kind of lower in that image. Um, as you can imagine, in an established part of the neighborhood like this, uh, we might have some settlement or some cracking that's taking place, uh, maybe a random pothole or two along that roadway. But again, something like that is sitting in the range of an 81. And so, our strategy there would be doing something like seal coat. It's a minimal pavement preservation um, technique that just really extends the life of that pavement. You've heard me uh, go over this slide many times. Uh, it's one of my favorites, and so I'll say it again. Uh but payment preservation is a really important thing that we do. Uh but what that is is it's just a proactive cost-effective strategy uh where we use timely uh maintenance treatments to maximize the value of our public investments by extending the life of the payment. So typically a payment drops in quality by about 15% in the first 40% of its life. But that next 15% of payment life, it has about a 40 uh% drop in quality. And so capturing a dollar, spending a dollar at the right place would otherwise cost us $8 if we delay it. And so a number of ways that we perform or uh we we handle these pavement preservation uh techniques. Simplest way is crack sealing on asphalt roadways. We also do seal coats typically taking place once every 8 years. Uh and millon overlays really varies on the pavement uh type or the roadway type um but varies from about 12 to every 25 years. And then on concrete roadways, we do partial depth repairs and full depth repairs. And here are just a couple examples of where we've done those types of projects and and what uh the condition was before and after those improvements. I want to define uh roadway classifications because I am going to reference this uh by pavement uh condition index. And so um first of all, an arterial roadway typically spaced

every mile throughout our city on section line roads. Um they operate in a grid-like pattern. In this image here, it's 40th Avenue South, Veterans Boulevard, 52nd Avenue South, and 45th Street. Uh these are typically major um roadways, many lanes, uh controlled access, things like that. Thomas, could I just ask a quick if you went back a slide and look at the street you were 32nd or whichever there is that pavement or cement or concrete? This is concrete pavement. And do you use them interchangeably or not or the you know when you're So um you're are you asking uh where we use asphalt pavement or concrete pavement? You're saying pavement

you're saying pavement but I'm looking at concrete pictures type as examples. Do you use those words interchangeably?

Yeah, good good question. Uh pavement is the overarching term of roadway pavement. Um and then we can break it down into whether it's concrete pavement or asphalt pavement. Those are the two types that we have. Good question. Uh so again uh arterials. Next we step down to collectors. You can see those in the images here. Uh usually intermediate spacing. Uh in this image because of the drain running uh in the center of this section north and south we end up with two collectors uh running on each side of that running north and south. Uh but they are really the link between the local roadways and the arterial roadways. So local roads those are residential streets. That's where we live. Um, and again, I think you I think you understand what that is. So, I want to talk a little bit about how we uh make investments, where the money goes, uh, what we've typically spent, and how that's kind of changed. So, uh, this is just snapshot of 2017 through 2020 of, uh, the spending by project type. On average, we spent, uh, just over $7 million annual on pavement preservation. Now what happened during that time though like I mentioned earlier we did uh we've done a number of uh pavement condition surveys and so we know what the quality of our pavement is. So back in 2016 you can see what that is based on local collector arterial and then all payment uh l uh lumped together and so um we go we go forward we do another survey in 2021 we get those results and we see our local payment declined uh by.17 points. We see that our collector payment decreased by uh just over five points and similarly arterials decreased slightly more at nearly six points. Overall all of our payment together was a a drop in quality of 3.82 uh which is u between four and 5%. So, we had this unique situation that uh we knew we weren't investing enough in our pavement preservation uh projects uh

in order to maintain um our condition at at the level it's at. And we had this really unique situation where we had the introduction of prairie dog funds at that time. And so that really allowed us to increase our annual investment and work um in in an effort to stabilize our pavement condition. And so that's what we did. We ramped up in 2021 and you can see a very significant jump in funding uh in the years 22 through 25. Over that 5-year period, we averaged just over $15 million a year in pavement preservation projects. And so here's what happened is that um you know between 2016 and 2020, uh we spent about 7 million a year. We saw a drop in pavement condition. uh from 21 to 25 we nearly doubled we over doubled uh what we were spending annually on pavement preservation. Um unfortunately I don't have the results yet of what that pavement condition survey says. Um that wasn't meant to sound like uh family feud there. Um but um we have a program in which we load all this information in. It uh measures what uh we can anticipate for uh deterioration in pavement and it gives us a realistic estimate of what that value is. What we are calculating it to be is we believe we've gotten back to that 2016 mark. Ultimately the survey will tell us whether that that is true or not. Uh but really the the point in sharing this is that um once pavement condition drops in quality it takes a lot of money to restore it back to what it originally was. And so this is why I talk so much about payment preservation because again if we don't spend the dollar now it turns into $8 later. And so it's really important to not not uh delay this type of work. So want to talk a little bit about uh sales tax the history and and how we project that um need. Unfortunately and and and you've you've seen me share this slide a number of times in in um capital improvement plan uh presentations.

Currently the needs shown in orange here are anticipated to outpace the revenues. Um and ultimately what's happening because of that is we have a diminishing fund balance. One note I also want to make is that uh the needs across um you know water water reclamation and streets really varies from year to year. And so what I would encourage that if the sales tax does uh get passed by our residents um that the city commission understand that and allow it to be flexible and determine on an annual basis where that need is um and and adjust it accordingly. So this one uh I'm going to step through this. There are several different funding sources that we rely on for the preservation and improvement of our infrastructure. Uh the pie chart that I'm going to show summarizes uh what those anticipated funding sources are for 20 uh for years 2026 through 2029. Uh and as a note, this does not include flood control, new development or alley paving projects. So the largest share of funding actually comes from outside sources uh most commonly federal funds and grants uh and accounts for 31% of the overall funding. Now these funds are extremely uh valuable, but in recent years they've become less predictable. Uh it's also important to note that these funds uh almost always require a local match uh which is most often provided through the infrastructure sales tax. Prairie Dog makes up 7% of the total. Uh we're really fortunate that the state legislature created this funding opportunity. Uh but similar to federal funds, uh both the amount available and their availability are not guaranteed. Special assessments account for 20% of the total. And as I'll discuss in a few slides, uh the infrastructure sales tax plays a key role in keeping special assessments for rehabilitation and replacement projects well below the full cost of of those improvements. The infrastructure sales tax itself represents 17% of the total funding. While it's not the largest single slice, it's really the most important. It provides a local match required to secure outside funding. It helps us

reduce the burden of special assessments on property owners. Most importantly, it offers a stable and predictable revenue source that allows us to plan for long-term capital improvements. Utility funds make up the remaining 25%. That includes 3% for the street light and traffic util traffic control device utility, uh 6% from the storm sewer utility, 8% from the water reclamation utility, and 8% from the water utility. It's also important to note that um no property tax revenues are used to fund the engineering CIP. Ultimately, overall, this diverse funding model depends on infrastructure sales tax as its foundation. The sales tax allows us to leverage outside funding, reduce financial impacts on residents and businesses, and helps us maintain a predictable long-term approach to infrastructure investment. These are really the four funding sources we rely on uh most heavily uh for street uh preservation and really sales tax reduces the amount that would otherwise be paid through special assessments to maintain and reconstruct our streets. As I've talked about the way in which we fund our uh streets uh like a preservation project like mill and overlay uh 50% of the project is special assessed the remaining 50% is funded uh through sales tax. So for an average property on a Mill and Overlay project, uh because we have sales tax, the amount of uh special assessments to that property rank is typically about $2,000. Uh without sales tax, that would double to $4,000. Similarly, for a street reconstruction project, we cap the amount per front foot uh that gets special assessed and any remaining portion is is funded through the infrastructure sales tax. Now, this one is more significant because the street reconstruction is much more expensive than a uh mill and overlay. Uh but a typical property in 2025 saw an assessment for the street uh the paving portion of about $5,600.

Uh and it's that value because uh sales tax allows it to be lower than than the true cost. Uh if sales tax didn't exist and we had to special assess the full cost, uh that would increase by more than sevenfold to $41,400 for a typical property. So where is the sales tax uh been used on streets? The answer is pretty simple. Nearly everywhere. Uh it's been used citywide to fund pavement preservation, rehabilitation, and reconstruction projects. Uh the map on the right hand side of the screen here shows every street that's received funding through in the Fargo's infrastructure sales tax uh in recent history. You can see that it touches nearly every street on that map. So what would happen without the infrastructure sales tax for streets? Uh it would be impactful to Fargo residents and businesses. They would likely see higher special assessments, higher utility rates, and a declining pavement condition. As we've talked about, um the full burden of funding the core infrastructure within Fargo would fall on the Fargo residents and businesses uh with no support for non-residents if the sales tax is not extended. And with that, happy to take any questions. And it over to Troy. [clears throat] Okay. Uh yeah, thank you. Good afternoon. uh like to talk about uh water utility and sales tax and then last time it was more focused on past what we have what we've done in the past. This is more future focused. We understand that um water rates, utility rates are just extremely important to our residents. We want to provide good core infrastructure, good service, but rates uh is what we, you know, try to keep in in good shape. So, uh this this slide you've actually

seen uh before, but this is our uh revenue expenses and transfers. Uh important to keep in mind that um water rates and then sales tax fund. They work together uh to help pay uh SRF payments and then support infrastructure projects. Also, we uh utilize a a financial model and that's been a great tool. I I I came in the financial model was there before I started, but it's just been uh really neat to see the work we've been able to do. And it's long-term, it's vision, long-term vision that we've been able to to work on. And with the with the financial model, we can program, you know, our needed projects and prioritize. So like for example, if we see an opportunity for grant funding, if we don't get it, we can take like another shot at it because we just know how important the every um every dollar is. Uh we get um with the grant funding uh being with this tool, we've we've received over $52 million in grant funding, which is very impactful uh to rates for us. But uh revenues uh rate revenue, infrastructure sales tax, grants and then um on the expense size uh we have uh debt service srf debt service, operating expensions, professional service, uh transfers, general fund trans transfers. That's really common to uh most uh water systems that are out there. And then we do work with Tom as far as the utility transfers to do our share of uh street projects, the water main portion of that. So I thought it'd be good. I didn't cover this last time, but just good to talk about our our water system in infrastructure overview. We do serve drinking water to uh over 180,000 people

and that's a big responsibility to try and provide uh safe you know drinking water. Uh last time we did talk about um some of the challenges we have two surface water sources the Red River and Cheyenne River. Both are very challenging if you look regionally and nationally compared to others. So that's why what drives our uh technology in the treatment plants that we have. Uh we do have uh treat uh two treatment plants a 197 or 1997 lime softening plant older plant uh and a 2019 membrane plant. Uh the older plant 30 million gallons per day. The the newer plant 15 million. And the thing to be mindful the since we're using surface water and potential of bad stuff in the in the surface water we are very uh heavily uh regulated uh from a from a standpoint to keep it safe for people to uh consume. And then again a lot of advanced treatment processes. And then uh the other thing that we've worked really hard in it's I I don't have time today to talk about we've really worked hard at dialing in the treatment costs and making it cost efficient. So um then uh besides the treatment facility and raw water uh sources we do have an extensive distribution network that includes large diameter transmission. Uh we have eight water towers in Fargo in our system now. ground storage and uh pump pumping station and then three booster pump stations to go to West Fargo. Um and this is a slide I kind of combined just make it a little bit higher higher level, but just think about what we've done with sales tax over the years. One of the really big ones that I talked about last time is our regional emergency water supply drain 27. That's really for the Red River Valley water

supply project. That was a must. I mean, we had to have a way to get it to uh get the water from Red River Valley Water Supply through the Cheyenne to the treatment plant. That that's a have to. Um our our water tower uh systems uh we just recently say in the past couple years, we got that working like it was envisioned in the 2005 master plan. took took like just like what Tom kind of was talking about with um you know restoring good infrastructure to make it make it work. It takes a long time but it took us about 20 years to get there to revamp the water tower system to work the way we wanted it to. Um we see on the right the membrane uh plan expansion. Uh that was one we actually uh rebid that project and we brought the bid cost down over $13 million. So, we're I I guess long story short, we're really trying to be practical in how we do projects. So, we're not we're not really doing that. We're not doing the Cadillac. We're just very practical. How can we invest the money long-term the most wisely to keep good service and keep our rates down the um lime softening plant, we also have that. And again, like I said, we've really worked to make the make it cost efficient. But again going back it's taken us about you know over 15 years to build and and then learn how to run it make cost efficient but just a lot of work and a lot of work we've done in the past but it um some of these are cash funded some of them have uh payments through SRF so looking at um the rate uh rate surveys the regional rate survey and you can see how we compare to other systems we're in uh we're in the uh lower third uh regionally which is which is really good. A lot of work went into that and in planning and and just trying to

figure out how we do projects and provide good service. But we again we know rates are so important to our to our customers. And again uh I talked about financial model and prioritizing what we do to keep our rates in check. Uh this is something we talked about uh last time as as well, but with we have [snorts] four different strategies we talk about as far as in the water side uh rate containment strategies. Without these, the estimated bill in 2025 would be about $68. With these strategies, we're at 43. The most uh impactful is sales tax and that prevents rates from going up uh about per our calculations in 2025 uh 26%. And then one thing I talked about last time too, this is like th this all works together. It's like dominoes. If you take out one piece, the the rest of it kind of doesn't work. Um so um the most impactful are the sales tax. Regional is the next one. So, what we're doing is just really spreading out fixed costs uh loan payments on infrastructure that pertains to our customers so forth. That's about 19%. Uh the grants which I which I said we've collected about 52 million in grant that's about 7% prevention of our rates going up. And then I included here um just our membrane plant water treatment uh cost efficiencies that that helps to uh kind of different from what Jim does. Our our water treatment process require a lot of chemicals, a lot of electricity. So we we worked on that. Um the other thing I'd just like to I put a note on the bottom here, but the infrastructure sales tax has kept rates Fargo

businesses, residents kind of artificially low. Um it's currently part of our revenue stream and since we didn't have like rate in many rate increases for probably the first 15 years of the or first over 10 years anyway um we've really kind of tapped out as part of our revenue stream. So you know prudent water rate increases will be needed even with the sales tax. So Troy bear with me. Um I see in here the the very clearly the residential information. I don't see any commercial mixeduse commercial how that all compares or looks to you know

right um so with that and I I think these you know from a percentage standpoint it's kind of it's just the the way our rate structure we we used it just residential because that was you know what served a lot population but between when you get into uh the different classifications of customers we do have like a fixed meter charge and then it just gets depending on usage the the meter charge and size size of meter they would uh you know they would go up in usage so but I think the percentages pertain to really all customers it's just we use this as an example from a residential part um if you'd like you know further information on how we do that because we we do sensitivity analysis on our

I I think it's important to talk to that community also. Sure. You know, my personal experience is to have a little building that used to be a private residence that's now mixed use. Yep. And what I see is very different than what the residents see, right? Versus what the district, you know, but but I think it'd be good to note that in the bigger picture so we know their situation circumstances also.

Okay. Can we can I follow up at some point with the Okay, very good. Thank you. Um so again with our rate containment on our residential the infrastructure sales tax the most that's the most impactful and it again it all works together. Um just regionalization, I thought I'd c cover that just a little bit. But what um when we regionalize it, it really it really splits out their fixed costs and are we we just spread out it's it changes the denominator of who pays for it on our more fixed but we uh with regionalization the benefit really reduced overall uh cost to rate payers. It's also you could also think of it at as a state level because like if we work together if we have one water treatment plant versus three it just it saves regulatory it saves you know a lot of work from the state level it also um improves reliability economy of scale and that's what we're talking about spreading out the the cost um also with I talked about the the grant stuff that we received about $52 million in grant funding in the past 15 years. Uh about 41 million of that is actually um has to do with regionalization. Um also we share in resources such as in Red River Valley water supply such as Cheyenne River permits and Lake Ashabila. Um the one thing I'd just like to um sort of correct I didn't I got asked about it last time but I didn't really have a good answer. I learned a little bit more about Cash Rural Water District. They have uh over 5,000 water meter connections to Fargo res residents and businesses. So most of the water we sell to Cass Royal actually goes to Fargo residents and businesses. Um and then uh the way the boundaries work, so all our

growth area to the south is really in Cassel territory and that's a state law. their boundaries are are um set by you know by law. So um with the cash roll again most of their water is actually going to cash to city of Fargo residents just so but I didn't until I sat down with them tie I didn't understand that so I learned a little bit so um and then [sighs and gasps] this you know moving forward as far as the red uh red river valley water supply project that's the largest biggest project that we have most important from a drought supply because we uh people that work with red river Valley water supply uh sisters mayor and commissioner Pepcorn um you know know that economic [clears throat] um impact of not having water is just not good. So we're we're working on that project under construction. This is the exact slide that uh Senator Hovind used a few weeks ago and he's trying to get um or he's delivered some federal funding and then working on more but just bring down the to all our customer but this is probably the biggest thing is is we will have payments moving forward on this this project. So um just talk about the need for sales tax extension moving forward. So, um, payments for past projects. I showed you a slide of some of the work we've done and some of those projects have been, um, they they support the sales tax would support the loan loan payment. So, we've been able to get really good loan terms, 2% for 20 20 to 30 years, 2% money. That's really good. And then uh the thing I tried to mention last time is the the state of North Dakota, we're kind of unique and get being able to get these loan terms with the state. So if you go to like Minnesota, I'm not trying to pick on other states, but it's way

more competitive, way more challenging to get this kind of loan terms. And then same with South Dakota, much, you know, interest rates. So we're it's a really big advantage to that. we've been able to build multigenerational projects, but at the same time since we've worked on that proactively looking into the future, we we do have to pay that back. So, we um just that that part of it uh known um improvements still needed. We residuals facility. I know that residuals that's a issue for Jim too. uh working on uh high service pumping station the cast iron water main replacement that's just really important on working with Tom and engineering on that uh Cheyenne water pipeline lead service line and then like the lead service line replacement that's really regulatory driven if we don't do it it's not good things for us in the future 10 years down the road so um and then drought proofing I already talked about Red River Valley water supply project, but it's under construction. The Bank of North Dakota has given us great terms as far as uh payments and and interest, the shape debt and and so forth. And then um one the last note on the bottom, the infrastructure sales tax doesn't cover all water system infrastructure expenses, but it significantly helps keeps our RA rates regionally now low. Um, this is just a, you know, say if we didn't, um, have sales tax, this is really a look at 2025. We're really in the lower third. If we didn't have sales tax, one thing that, like we talked with Tom, we're able to um kind of marry up street projects with with uh water main replacement. So, we work together. If the sales [snorts] tax wasn't there, it'd be much harder from a pavement condition and we'd kind of have to do

look at doing projects on our own. So, it would be more expensive and more challenging to do. So, that's that's one issue. And then, like I said, um what we've done with sales tax and the loans, it really it's really dominoes kind of it all works together, but the rates would be much higher if we didn't have sales tax. Uh moving ahead, just the again the need. Um we've really worked hard at thinking into the future building good infrastructure. It's going to require maintenance and upkeep down the down the road. Uh allowing uh assets to fail and like um Tom was showing had to pump extra money in for a few years to kind of catch up. Kind of the same thing. If you let it go, it's higher cost to replace. And then the other thing another thing with us water system again very highly regulated so it's not really it's not really an option to do less and it's not really an option we'll just turn off the water for 3 months if we're you know it's just not those aren't really that's unrealistic but it's just we're we're highly regulated we got to keep going and then the benefit of sales tax um you know non-residents they use our water they use our streets they use our our uh water you know water reclamation facilities. So currently they they contribute to sales tax and help us out with that. So without the sales tax, all water utility costs would fall on Fargo residents and business. So it's it's just been a really good tool for us long term. So we it would be very valuable moving into the future. So [clears throat] with that I had any any questions? It's pretty

maybe just a comment because you touched on this and it goes for for gyms too what we're about to hear but being part of the monthly utility meetings and watching the team that is collaborative you're all there every month as well. It also allows for that long-term planning knowing you're going to have a predictable funding revenue source [clears throat] like that. So, we can have a 20-year plan to look at growth, to predict growth, but then also have the time to look for more and more efficiencies. And I would argue that we would more than double our utility rates without having those tools in place that are possible because of the funding that's predictable. So, I mean, I just see it every month in the discussion.

Yeah. Thank Thank you. and and just wanted I didn't mention that I was going to but we are currently doing our first like full master plan since 2005 right now to really look at so really look

um into the into the future and and and forecast that. So but and then we you know trying to partner together with other So all righty thanks Troy. Good afternoon everybody. Um my first few slides are just kind of refreshers from the previous uh presentation that we had and very similar to what Troy had on the water utility side. So essentially when you look at revenues and expenses um the only two uh reliable sources of revenue that we have on the wastewater or the water rec side is rate revenue and infrastructure sales tax. We don't usually get a good opportunity to have a lot of grant funding like the state water commission on on the water side. We generally have some opportunities for FEMA grant funding but that's um competitive and it's kind of hit or miss if we have an opportunity to to get those. SRF reimbursement is not really revenue. It's essentially a pass through or a cash flow from SRF projects. And as you look at the expenses, for example, our biggest uh expenses obviously are capital improvements. That includes new infrastructure as well as repairing and taking care of old infrastructure. Our operating expenses are quite expenses, you know, expensive as far as chemicals, energy, staff, salaries, and benefits. But then of course there's SRF debt that we cannot forget about. SRF debt is manageable um as long as we have the infrastructure sales tax moving forward. Then of course there's transfers uh the utility share of street projects to support the engineering CIP and then of course the transfer to the general fund. So again this is just a refresher as well too. Um as you look at uh this overall picture here uh you'll see the three lines. Those are three sanitary sewer interceptor. An interceptor is essentially a large diameter pipe that transfers wastewater from point A to point B. So if you look at to the right there, the uh Broadway interceptor essentially follows Broadway that was built in the 1930s. The Westside Interceptor, the purple line, was built in the 70s. And the 45th Street

interceptor, the red line, that was built in uh 2009 or put in commission in 2009. Essentially, um the 45th Street interceptor was one of the larger project projects over the last 20 years that alleviated capacity concerns with the westside interceptor and along with that the County Road 20 lift station was built. It's a massive lift station up along County Road 20 to where we are able to send all of our wastewater flows in the event of an emergency, a heavy rain event or that type of deal. Then of course you have the Broadway interceptor service improvements. This project was essentially to alleviate the potential for sewer backup in the older parts of town. Some of the older parts of town have uh issues with inflow and infiltration, meaning they were getting rain water finding their way into the sanitary sewer. We were able to move all that water to the wastewater plant and prevent any kind of sewer backup in those areas. And then of course the regional water reclamation facility expansion. You can see $151 million there. Yes, it's a big investment, but we're able to accommodate a population of 271,000 people. And I think in the previous presentation, we talked about the cost of delaying projects like that. Our neighbors to the south in Sou Falls had a very similar uh project similar to our wastewater plant expansion. We bid ours in 2020. They bid theirs in 2022, and their bid price was $220 million. And they're also doing another project now that they actually had to pull out, and that was another 50 million. So you can see they're close to $300 million. So delays obviously add to costs. Again, um here's Fargo's rate. With all those projects that we've done in the last 20 years, high dollar projects, we're still able to keep our rates low. That being um one of the causes is infrastructure sales tax. It helps keep those rates low.

So So Jim, stay on that slide if you would for a moment. Yes. Well, why are we the only ones without a volume charge? That's a good question. Um, we are going to get to that point someday after Troy is done with his metering project. That is going to be an easy switch for us because right now we charge just individually to each home. So whether there's six people there or whether there's one person there, we're charging that $25. But once we get the metering completed with the water plant project, we can actually transition to actually have a metered type rate moving forward. So, if we had a a a mixeduse or commercial business slide, would it look the same? Um, your mixed use and commercial versus residential.

We currently build them volumetrically as opposed to entirely only volume. Yes. So, how would that slide look? Uh, if I was to see it visually where they would be charged relative to comparative,

we we have that slide too. I guess we could have inserted, but we are regionally very quite low as far as that goes too, but it's based on volumes that they use. So, So again, similar to Troy's slide, we have our rate containment strategies. Again, infrastructure sales tax is helping us keeping our rates quite low. Then you see the regionalization and then the grants, loan forgiveness. There was a question at the last uh presentation that we had talking about what we charge our outside users. And I look through all the outside agreements and all of our outside users pay rate plus a sir charge. The lowest percent increase on Fargo's rate is 37%. So our outside users are paying upwards of over 37% on all their and some of them are upwards of 100%.

And is that because they have no fixed costs like we do or fewer way fewer fixed costs?

Well, we charge them higher because they didn't pay for our infrastructure first of all. So that's part of the search charge and then a lot of it's dependent upon how they get waste water from point A to point B. how many lift stations are in between and that type of deal and how how difficult it is to get to our wastewater plant is dependent upon whether it's 37% or 100%. So, similar to uh Troy's slide, this one will show a snapshot in 2025. So, again, our rate is $25 with sales tax. That rate without sales tax would be $43. And in there that would include operations of the wastewater utility, our debt service, transfers to the engineering CIP, and transfers to the general fund. After all of that, without sales tax, our rates would need to be $43. So, the need for a sales tax extension. Well, of course, we have our regional wastewater treatment plant. Um, this is now complete. Um, one thing I want to make note of is due to regulatory concerns and Fargo's growth, we would have had to have a wastewater plant expansion regardless if we had regional partners or not. That was needed with or without regionalization. So, that was going to take place. We're fortunate enough now that our outside partners can help pay for some of our debt service. We now have a 20 to 30-year benefit for our residents. Uh, we did utilize low interest loan for this, but that was essentially to prevent dramatic rate increases. you can imagine a $150 million project and you're trying to fund that um on rates. So those rates would have been jumping up and down quite a bit over the those five or seven years of construction. And now moving forward, we do have those loan payments move moving forward. They're a known expense. So some of the projects that we still need to do moving forward in the future, the Westside Interceptor improvements, it's estimated to be about $50 million. Again, it's one of three major interceptors that we have and it was built in the 70s. We've had some recent failures and those repairs are

upwards of$200 to $250,000 a piece. So we need to work with our engineering partners to identify a plan of uh repairing that interceptor. We also have treatment facility solage project. Essentially that's estimated at $30 million. We're looking at automation technology improvements as well as safety improvements. Then we have our ordinary on&m. Uh we have 73 sanitary lift stations and they generally last about 20 to 25 years. So we try to rehab three to four of them each year. Then of course we have hundreds of miles of collection system maintenance and then of course extensions to support bargo growth. Regulatory requirements just like Troy um we are driven by a lot of our permits and our requirements by our regulators. So our permits essentially drive these requirements that must be followed. Sometimes these requirements require infrastructure improve improvements. For example, if they would change our discharge permit in the next 5 years and tell us we need to be more strict on nitrogen, phosphorus or ammonia ammonia, that would increase cost as far as infrastructure or something very difficult to remove like PAS would be another concern. And then failure to comply with this would could result in significant penalties or fines. So generally infrastructure sales tax does not cover all wastewater expenses but it does keep our rates regionally low and like uh my partners are saying up here non-residents benefit from Fargo infrastructure with Fargo infrastructure sales tax non non-residents will contribute without infrastructure sales tax all utility costs will fall on Fargo residents and businesses and one thing to note water and water rack really don't have the luxury of doing less in fact we anticipate in doing more each year when they turn on the tap they expect good water when they flush. They expect u their basement not to get full and we expect that as well too. So that's one of the things we just want the resources to be able to capitalize on that as well. So with that

all right well thank you very much to Jim and Troy and Tom for presenting this afternoon. I think you heard it commissioners directly from our utility leads that that resiliency in the funding model, that reliability in the funding model is paramount. If we don't have that reliability, we know exactly where those costs have to fall. And unfortunately, it's going to be on our Fargo residents and our Fargo businesses uh universally and unilaterally without the participation of others who are also contributing to the wear and tear on our system. So, I just want to summarize with a few uh last slides, but uh just really want to thank the our our presenters here today. Also highlighting that again, I mentioned this earlier, what we're doing in Fargo is really not unique relative to the other larger cities in North Dakota. I can tell you that West Fargo in addition to the state and the county taxes also has a 2.5% local. Uh like Fargo is at 2.25. Uh May not is at 2%, Grand Forks 2.25 just like Fargo, Bismar 2%. So again, it's really not unique. It's really not all that new about what we're doing here in Fargo. In fact, we believe this infrastructure sales tax is really the absolute number one tool that we have at our disposal to containing our utility rates. It is the most important tool because it allows us to keep the monthly water and sewer bills much much lower by providing that steady stream of capital and working revenue. So that's going to help us also secure federal grants. We didn't talk a lot about that today, but please know that we are always looking for federal grants and opportunities as well as the loan forgiveness programs, uh the SRF program for example, uh to try to bring even more outside revenues, more outside dollars to Fargo to help uh benefit our businesses and our our residents. But every single day, this infrastructure sales tax has provided that predictable and thoughtful way to invest in Fargo's infrastructure, invest in Fargo's future. We think it's the most responsible thing that we can do as we look to the future.

Uh so as we uh look uh to the future, we know that this is a very very critical thing. Again, we're talking about $34 million in uh sales tax that has been generated that's really allowed the city to fund these necessary core infrastructure projects while sharing in the cost with the visitors that that uh come and visit the community that also contribute to the systems degradation. So, if the 1-centent sales tax would end, we know and we we hope we've been able to communicate that today that that work would not end, uh it would not simply go away with the expiration of the sales tax. And in fact, that bill would just get shifted. It would get shifted to some other uh payers that frankly would not have as many of the tools uh to pay for that cost of that infrastructure. It would result in a larger reliance on special assessments. And that's something that this commission has talked about for several years that we want to try remove that burden of special assessments especially on fixed income seniors as well as those in our core neighborhoods throughout Fargo. Uh so we think that this is really an opportunity for us to share that cost with many many payers in a shared sales tax model versus having just a few people more heavily face that burden uh on those on those responsibilities of cost. So we think the choice is clear and it's one that we want to make sure that we're communicating clearly to the public as we get ready for the future. So when we talk about the infrastructure sales tax again it's a multi-generational balance of the assets that we have today as well as providing for that stability. It's really providing that that resident as well as that business uh the opportunity for everyone to participate and contribute. This is just a snapshot of what we've been able to do in that one penny. That one penny uh is one that has delivered significantly for us um over time. And then again uh just to recap uh think of it this way, the annual revenue generated by this 1 cent sales tax is

the equivalent to 75% of our total property tax collection. So simply to replace uh this sales tax would require utility rate increases, special assessment increases that would have to skyrocket. That's a reality we don't want to talk about. It's one that we don't want to see for our residents and for our businesses. But we would be walking away from the stability of a very very good funding source that has provided for uh now over two decades of improvements in Fargo that has been shared with our visitors, shared with the non-residents who also are here taxing that infrastructure, but it really shifted that entire weight again to those residents and the businesses. So we think we've got the best plan, the most responsible plan, you know, to really move Fargo forward. Uh so again, this is about responsibility. It's about moving forward and we look forward to visiting with you. Uh here in a couple of weeks, we'll be back in front of the commission to talk about our ballot language. We'll get that finalized. Also want to highlight for you what we handed out uh in the packet. We have the original resolution. We have the draft resolution and the draft ballot language and that will all be discussed with you here very very soon at the city commission level at uh the March 16th meeting. This will be on the June 2026 ballot. Again, we think it's just the the absolute right tool to ensure that our residents, our citizens can make an informed decision at the polls, but we want to provide that education as best we can. So, happy to answer any questions you have today. Again, very much appreciate your time and we're happy to take any final questions you have. We want to be respectful of your time here in the last few minutes we have. So, thank you again.

Any [clears throat] questions, Mr. Strand? Thank you. Um, so we have our infrastructure sales tax that you're we're bringing to a vote in in this next election. Basic for starters, how long is that term of that sales tax? That'll be a 20-year term. 20 years. So, we have that 1% for infrastructure and that includes the variety of things, streets, water, wastewater, flood, drought. Then we have the 1% diversion flood tax till 20 84 84. Right. Correct.

And and so how much of this infrastructure sales tax isn't covered by the diversion sales tax 1%. I'm confused about the two and where they overlap. I'm also wondering about the timeline of if the diversion fund gets paid off earlier, does that create space or room or just looking at the how that lays going how those lie going forward?

Yeah, absolutely. So, thank you commissioner for the question. So, the the emphasis we want to make on that quarter cent dedicated to uh the the flood protection as well as the water supply project is that the water supply project is at a really critical point right now. We've been in front of the builders as well as the chamber seeking their support not only for this me measure, but really [snorts] talking about the future of that project. It's not going to be too many years from now that we will hopefully bring that western water to eastern North Dakota uh visav the Cheyenne River. And so we have to have that stability of revenue and that model to be able to fund that improvement. Uh Fargo has been advanced funding a lot of those improvements for our other partner entities. And so in that case on a $ 1.4 four billion dollar project with water supply. We're responsible for a significant chunk of that project. And so we're emphasizing that today and uh today and tomorrow. But the language as presented back in uh 206 and the language that we presented again is provides that flexibility. If in the future, for example, we would have a levey, a flood wall, perhaps some other infrastructure related to our in town flood protection where we still have to flow 37 ft through town to be able to operate the diversion project. still allows us to be able to come back without going to the property tax to make that improvement. Um what we've learned with flood walls is that they don't last forever. We try to build as resilient as we can, but failures can and do happen. And so we would need to make sure that we are trying to think on the horizon line to prevent those failures and and making sure we're investing in that infrastructure. So if we need that at year 15 in the next uh iteration of this sales tax, we got to have that flexibility and that's what that language provides us. But uh no doubt that this commission as well as the diversion authority will have lots of discussions about what does advanced funding look like on the 2084 tax if they're able to retire that debt early. What will that mean on the 2084? But we know that we need st sales tax support for water supply and for any kind of other incidental improvements to our flood control systems within Fargo over

the next 20 years. always the dedicated tax for flood by the county and by the city John those are written such that if the debt is paid off on the diversion they would go away before 84 this tax is a 20-year tax regardless of what happens that so the flexibility will come in the flood tax is that some people are predicting even now it might be done by 54 so that is we get that flexibility it really depends how much our sales tax grows our sales tax amount which is minus three right now, but if that goes back to a 3 to 4% clip on a yearly basis, it could be paid off earlier.

So, here's my last question, I think. Um, at what point and how would we ever modify the definition of infrastructure? Like for example, in my mind, someday, maybe today, housing is infrastructure, transit is infrastructure. and at what point are we able to address other infrastructure needs or get them into this mix to be cons considered for this approach financially?

So, Commissioner Strand and and and commissioners, it's a fair question. Um, what we're talking about today is really the conventional infrastructure, right? You know, that we've really focused on for the last 20 years. the future city commission uh in 2030 2035 could always advance and consider other local option sales taxes. We have been really thoughtful and considerate and trying to keep this as narrowly focused as possible so that that voter knows exactly what they're getting. Um I think the thing that we've learned certainly in our other sales tax measures is that the more specificity the better uh because it doesn't allow for any confusion, doesn't allow for any kind of question about what we're going to do with those proceeds. So if there would be questions about things like housing, like child care, like other matters, those would be separate matters likely not considered within this. We had a question similar to that this morning at the chamber public policy committee. And frankly, we've learned that uh the best thing that we did in 2006 and and a credit to Mayor Furnus and the commissioners at the time, uh Commissioner Mahoney at the time, Commissioner Wemer, and others is that it was narrowly narrowly defined so that people knew exactly what they were getting. But at any given time, future commissions could certainly talk about other sales taxes, but today we really want to focus on the infrastructure that has benefited Fargo residents and businesses.

Any other questions? Excellent presentation. I think the uh department heads have to be congratulated. You've worked really hard on this. I know all three of you on your departments have been working very hard on it. The other thing I want to say on is you've had a very, you know, in 206 it was not known how much uh everything would cost. I mean, and Tom, you and I know streets have gone up quite a bit. Uh never had ideas of how much concrete would cost and all the things that have cost us. But the same thing with Troy as we got into membrane and got into things we would in 206 we didn't know that now we know. But we also found some efficiency. And I think wastewater, if anybody ever tours the plant to see the end product when you guys are done, it's just unbelievable how many advances you've made and to decrease the smell and decrease the issues we usually have in a wastewater plant. But again, Mike, I want to say the team did an excellent job of presenting this an excellent job. I think that the public we presented to the chamber today got a good positive response to that and the chamber is going to help in some ways help get the message out. Let's re renew this tax. So I think we have to do our part. Mr. Strand,

this election will be in June. The final deadline to file for ballots and stuff is 60 days before that and and so on. So, the time clock is running and if I recall, we as a government subdivision entity cannot advertise and promote and market for a vote on a tax. Who's going to handle that on our behalf? How are we going to have the marketing, the communication, the narrative put out to the public? Do we have an entity that will carry that ball for us or promote that for us or or because it's not on our shoulders, we can't as I understand it.

Yeah. Correct. Thank you, Commissioner, for that question. So, we have worked historically with many partners to help us tell our story, too. We can educate, we can inform, we can be a collaborative, but you're correct. We cannot organize our own vote yes committee. We really have to rely on others to do that for us. Uh but that said, uh we've formed some very very good partnerships with the development community um as well as the housing industry and I think that we're going to continue those conversations. Uh we are are looking to partner in a coalition model to help tell the story so that they can go out and and work th those issues on our our behalf because yes, we want to be respectful of the law. No question about it. But then we also need to be able to candidly and unequivocally say what we've been able to do with these dollars uh over the last 20 years. And so part of our our visits like we've had over the last two weeks, we were at the chamber board meeting last Thursday, we're at the Chamber Public Policy Committee meeting today. We'll be in touch with the Homebuilders Association hopefully tomorrow, is to do just that. Can you help us either with your own efforts or with other friends that you have in getting the word out because we think the value proposition here is a strong one uh not only for the businesses and the community uh but as well as for uh those stakeholders that are members of those types of organizations. We think this is the best way that we get this done because we don't want to have to default back to the special assessments or to those large property tax uh reliances to be able to get the job done. We know that the work will continue. Uh we've got a lot ahead of us, but uh we just need to keep telling that story. Um this is about the future really of Fargo and the future of bringing those those types of services to the future residents and generations. Water supply is top of the list.

I would hope maybe somebody will champion it on our behalf. That's the right fit for the messaging.

And John, if you have any partners in the community to volunteer, please do. [laughter] Michael, so another important point I think is when we look for those champions and we heard it today which was very important I thought and powerful from the chamber that said drought and flood protection have been a top priority and aligned with their mission for many years and so where we can tap into what is important as priorities and and aligned with mission in those groups that we're working with all the more powerful right and so um it was just a really nice comment to hear from the chamber this Yeah, commissioners, thank you for your time today. We we really appreciate your time. So, thank you.