City Council - Regular Meeting

He's already trying to figure Just remember we are big. Yeah. Um well well I'm not sure I agree with that. All right,

there it is. Let's start our work session. Jane, you all right? All yours. It's all over get started.

Welcome to Consor. They've been here before. This is our engineering firm that's helping us with our uh rate study and capital improvement plan for our wastewater treatment uh system. And here tonight they will talk about SDC's or system development charges. These are the charges that we charge people when they want to build something and create new connections. And I think they'll have a couple other updates for some of the other things they've talked about in previous sessions. Um, we have Deb and Brendan. Um, and we're very grateful for them to be here today. Um, and Chelsea has their PowerPoint. So, Brendan, go ahead.

I don't even need to introduce myself. Uh, that's exactly why we're here. We're here to roll out the SBC system development charges updates that were being recommended as part of the facility wastewater master plan. Um, and I'm just going to hand it to Deb. She's our uh accounting specialist account for this and she's going to roll through what the book methodology that was used to determine rates talk about comps and what the recommendations are and we're just loading PowerPoint. So, and there it is.

Great. Thanks. So as was mentioned um main it is new item today is systems development charges but I know there's a couple of new faces since I was here last so I just and we've done a little bit of refinement to the financial analysis so I'll just present that summary uh just a little recap of uh it all started with the facility plan and the capital improvements and operational recommendations that come out of that that feeds into the rate analysis which we presented on February 2nd. That analysis determines the annual revenue needs and rate impacts for a 10-year planning period. And that those are the user charges, the ongoing fees charged as the customers pay. Tonight, as Sean said, we are looking at the growth costs that new development pays uh potentially through some changes to the systems development charges. So just to level set what uh SBC's are governed by specific statutes in Oregon and um they are to recover capital costs only not for operation maintenance replacement of the system. the methodology and process that you go through to modify the SDC's must comply with uh the Oregon uh revised statutes 22397 etc. There are three main components of the SEC program. First is the project list that comes out of the master planning process. So projects are identified description timing and key is what

percent of each project is needed to serve capacity and for future development. The SDC methodology then determines what the overall costs uh associated with meeting those growth needs are. What is then the basis for charging different types of development um and in some cases uh location Then that methodology and the project list together produce what we uh call the maximum allowable fee schedule. city has discretion to implement that at the full maximum phase in charge something less that that the law just basically puts a cap on what you can charge based on the methodology and the project list that you adopt in determining the growth cost. We obviously a key component of this is the project list that comes out of the the planning process but you also have previous investments in treatment plants and uh other facilities that will also serve growth. So the one of the key elements of the statute is the reimbursement proponent. So we can include and we have in the numbers that we're presenting tonight both the reimbursement fee and a future booking improvement fee. The reimbursement fee we have to make sure that uh we're not including um costs that were funded previously by uh grants or private development. It's really about reimbursing the city for city uh investments and there has to be available capacity for growth. So we've done um and the engineers have evaluated the available capacity in the system and we've valued the facilities that have available capacity for purposes of the

SEC. We also uh include compliance costs. There are costs associated with complying with the statutes like my time um counselor's time to help develop the project list, the STC methodology that you can spend STC's on those costs. Again, the idea is that both pays for itself and it helps to u mitigate increases in user fees. With respect to the project list, uh a key consideration for each of the projects is what is the driver? What is the need for that project? There are many projects that are associated with asset management, replacing or rehabbing existing facilities. So if a project is providing basically replacement capacity for existing development, that's not something that can be paid for dest. So it's really that expansion, the upsizing of pipes or facilities of the treatment plant that we're trying to recover to the SC and it can include regulatory upgrades because yeah, but there's both that will serve growth. It will also provide new uh facilities or higher level of service for existing development. Again, if uh there are pump stations or um collection mains that are going to be funded by private development, that is outside of the SDC process. Also looking at the projects cost and the existing system valuation, we have estimated through the reimbursement component that 6.8 8 million approximately uh associated with treatment plant

facilities and capacity is um available for and will be needed to meet the demands of future growth. The improvement fee includes almost $5 million of improvements to the treatment system and then $9 million for collection system assets. So the total combined growth cost is about $20 million. The total master plan cost is 72 million. So the um the growth component is around 20% I would say roughly. A lot of the improvements are needed to remedy existing deficiencies, rehab um to address existing capacity needs. The other part of the uh SDC methodology is looking at what is systems development charges are really impact fees. That's what they're referred to in other parts of the country. And so we want to charge new development based on its potential impact on the system because these are customers that are, you know, new development. There's no usage history. You're not going to charge on a usage basis. So we have to estimate what that impact is going to be at the time that the development occurs. And so um generally one of the most common approaches to that is to look at the water meter size because you size the meter based on what is needed uh to serve that development in particular and that's how you charge your water SPCs. So that is uh the way that we uh develop the preliminary SBC schedule. There are some industrial customers that you may also want to consider their estimated flows and loadings if they're a large

enough customer that would impact this the system outside of just looking at the flow component of the bar size. This table shows what those SDCs are based on that uh roughly $20 million of costs that we're trying to recover. that cost is going to serve development over a 20 you know year period in some cases for like treatment but and even longer for the collection system. So it spreads the cost out over the capacity that will be provided which in some some of the facilities will be through buildout system. So the current SDCs are quite low. They have not been updated in a very long time. is about $1,200 for a residential customer and up to $2,000. So, not much range, very low relative to other STC's and what uh what other communities are charging and the needs of identified in master plan. The revised fees are very similar to appointment water SBCs are and the r both the range is a little bit higher. I think the water SBC is just under $9,000 for the smallest meter size and um the uh estimate that that we came up with is just over 9,000. The fees for each meter size increase based on the capacity of that meter relative to the smallest meter size. So it's very standard approach uh based on engineering you know data and uh standard meter capacities. So it would range from uh about $9,000

meter up to u several hundred,000 if you're looking at the 10-in shooter. Uh very few of those. In fact, I don't I don't recall, you know, if the city has any at that uh large of a a meter size currently. Just to give you a comparison, uh the just picked a handful of communities, coastal communities that are small and the range was anywhere from $5,000 to almost $14,000. uh need parts oceanside they very recently updated their SDC's for the water system so you are the revised at 9000 is right you know within that range similar to Bay City Civic City just under under what they're charging uh when we look broader statewide you know when we start factoring in larger communities uh the fees tend to be slightly lower but um anybody that's facing you know small system it nine not over 10,000 is not uncommon the statute in addition to having provisions that relate to the methodology has a process that you need to follow in order to move forward with uh adopting the new methodology and project list and fee schedule. So, as I said, the council has discretion about what fees to ultimately charge. You should uh if you're you know want to move forward with this adopt the methodology separate from the fee schedule because at some point you know if you want to whatever fee you decide to adopt you

want to be able to have that fee increase in the future with inflation because these costs have all the the SEC's have been calculated based on today's dollars and many of the projects aren't going to be constructed until you know 5 10 years later. So having the the law allows that you can adjust those annually based on a construction cost index and that's what most cities will do is to tie it to the engineering news record or the uh consumer price index or something like that. So that though that maximum allowable will increase and whatever fee level you adopt will also increase based on that. Um, in order to actually adopt the methodology and whatever fee schedule uh you determine, you have to provide notification and interested parties which generally are developers and maybe chamber of commerce. you know, just post something on the website that this at least 90 days prior to the public hearing to consider that um adopting adopting methodology and project list and then we have to have a report available 60 days prior to that that describes the calculations and the projects and how we came up with the updated fees. So, uh, I'll pause here if there's any questions on the SPC's before I just do a summary recap of, uh, an updated rate information. So, on the on page 11, so I would assume that smallest meter size would be a single family home.

Yes. What would be those next few tiers, if that makes sense, just for Yeah. Uh we looked at like a a major customer, one of your larger customers I think had uh like a one and 2 in meter. So um I don't know maybe has a one and a two inch meter. Okay.

And then some apartments they have one in I believe and then uh some of the bigger businesses that consume water they'll have like two. We all Hampton I think has our biggest variety of Okay.

All right then. I had a question. Yeah. uh on the graph that's the reimbursement and the investment how so that yeah that's the total needed y um and is that's anticipating the 20 year 20 year so we would be during what million

it's actually a longer period and Brendon maybe you can I the master plan for the rate we're looking at a shorter time period and looking at the actual you know what project needs to be done in what year and then there's some projects that are beyond the 20 year period the STC's take whole risk and but we're also spreading the cost through buildout so it's not just you know take a 20 or beyond 20 year and then divvy it up the 20 year period so we match the you know it's really a simple math in terms of cost divided by number of new units and we just need to make sure we match the cost and with the the units that will be served. So

how was that how's what was the methodology used to give the units?

Well, that's based on growth projections um using uh PU's uh population data center numbers. So it's looking at the total growth allowed within the current GPA and expansion plans outside of that within the next 2530 year plan. So looking at where you are today, where you could go, that's that delta, how do you spread that growth out? And that's what that 20.7 is to accommodate that new growth within the city. Good questions. Okay, just and this is very high low because we did a really deep dive into this uh last time, but again since some of the numbers changed and I know there's probably new to just uh do a little recap. So the just for some context, the last sewer rate increase was in July of 2021. So it's been a number of years since there was any increase at all. And that decrease was there had been um a period of phasing in uh rate increases between 2015 and in 2021 at 4%. So just bit above inflation. Prior to that there were no for a number of years. So it's and and of course there's been inflation in every year and um backlog capital improvements as limited in the plan. So the cumulative inflation over the last five years alone has been about 20%. So um there's some catch up to do from a cost inflation standpoint as well as capital improvements. The facility plan identifies 45 million in needed improvements within the next 10 years. So that's really what we're looking at

uh in the financial analysis. The financial analysis is intended to provide you know order of magnitude rate impacts. The we know a significant rate increase is needed in 2627 to write the ship in term financially uh to be able you know uh to just even have cover your operational maintenance costs as well as some level of contingency. We talk a lot about all the breaks uh main breaks that the city has been experiencing and you know there's emergency investments regularly occurring and to be preparing for the first major capital project which is millions of dollars. A lot of the next few years is going to depend on the exact capital financing that the city is able to put together with the lending agencies. We have done our best to estimate interest rate term you know what percent of the uh principal may be forgiven based on the economic conditions on all of that. But until you have an agreement on eight these numbers will shift slightly. this is or you know to give you yes you need a major rate increase as quickly as possible from that there's there you're going to continue to experience you know higher than inflationary increases but um this is to be refined once you get the uh more specifics on the capital funds the updated projections are shown here the bars represent costs, the projected costs each year. The green is uh personnel, other operation and maintenance costs are the purple, the

blue is existing debt service and and I know you know one of the questions is well the rates are high already and they're going to go significantly higher. What's up with that? And part of that is you already have a lot of debt for a small city. We looked at um some numbers of just comparing the the debt per account and debt per capita for the city compared to some benchmarks. They're significantly higher. And so the prior investments that you've had to make have already put you in the position, you know, where you are now. And yet there are many more improvements to do. So it's, you know, part of this that we are a small system. you can't spread the costs over uh the economies of scale that some of the larger systems have and um you have acute infrastructure needs. The good news is that what had been a 40% projected increase in the first year is is now at 30%. We looked at some alternative phasing in of some of the major equipment and of course anytime we look to defer further there runs the risk of additional system problems and additional expenses from emergency repairs things like that. So trying to balance the need to raise the rates in the short term with the uh potential for additional costs and issues with the system that are created from continued deferral of the capital improvement. So trying to strike that balance, the FY 26 27 rate increase is 30%. And then uh decreases significantly uh to 14 and a half for the next couple years and then under 10% projected for a couple of

years and then hopefully by the end the the last five years of the plan at a more inflationary type increase. But the next 5 years are critical to putting you on a path to be able to fund to demonstrate to the lending agencies that you can pay the debt. Certainly that there's a need to have as much principal forgiveness or grant funding as possible uh given the affordability issues. Um but this is a slightly less steep line than what we presented to you previous. It does also though assume that you will increase the systems development charges and then there'll be some additional revenue coming in from those weeks. So they they do work together uh to fund the capital projects.

Question. Yeah. So you write this thing. Yeah. Do you know what the total is between those two blues? What the total is for that debt service for cash fun uh for each year? No. Um yeah. Are you asking for like what's the existing over the oh over the cumulative? No. I mean I can certainly get you that. discussion. What's that existing service?

Yeah, I think that it it looks like on the chart here you can see that it's about a million dollar a year. The only this only equates about 45 to 50 cents of every dollar we take in there's the debt service. What's the total debt? It's about a million dollars in debt service per year. Yeah. What was that? What is the total day? Like Yeah. Yeah. What is it? 169. That's that's kind of what I was

and this plan anticipates that you will fund you know 70 80% of the cost with new debt because you don't have a cash to that. Yeah. And and that is part of the problem is you can see the line at the very bottom. There's a dashed line and a um a blue line that is almost euro 26 27 that's the beginning fund balance is projected. Um you you know industry benchmarks recommend at least a 90day operating contingency uh which you are not projected to meet. That dash line is just what would we could we bring the contingency or the fund any fund balance up to a uh recommended just minimum level. And so, uh, that's what, uh, part of this as well is putting you on a more financially sustainable future. So, the table then just takes that rate increase and applies it to the current residential bill, which is about 9268 for a residential unit, and shows how that bill would increase. And these are assuming that the rate increases would be applied across the board. We talked at the last meeting about the fact that when we look at the comparisons with other communities that the residential rates are high, your multifamily hotel motel per unit rates are less high compared to the other um communities and your non-residential rates are actually lower than the midpoint of some of those. So there is an opportunity here

to potentially um have less of the burden be borne by the residential customers, the single family residential customers and by applying a slightly higher than 30% increase to the non-residential and the um multi-unit customers to bring them more on par you know addressing equity uh fairness with respect to assistant costs are shared. Yeah. And here please

these numbers mind you are only for sewer rates not the water rates or what the total bill of the city services will be. We'll have more clarification on it during my presentation later tonight. Yeah. So, we have a question. I do. I do have a question. So, we've raised the SPCs and all that stuff is designed in the way it's supposed to be so that these numbers work. And then what? We don't have very much development. And what about the volume of how many times we're going to be asking somebody to pay one of these feeds? maybe twice a year or something. I do not know.

Yes. Yeah. Any comment?

The comment is yes, you are absolutely correct that the SDC revenue generated is a function of the SDC rate charge and the number of new units at system. And so you could, you know, increase it up to the $9,000, but if you don't get any development, then you won't realize any increase in the SEC revenue. We've based on the same projections that Brennan was talking about, you know, we've done our best to estimate what the rate of growth will be and the number of new years added to the system. And that is what that that's what's part of these projections. Thank you.

But to that point, council member, there's two or three of the initial capital projects that the city's looking at. Uh looking specifically on 12th Street, the pump station that's currently at and um some uncapped uh uh lateral lines that are causing problems with the INI and and those. The assumption is if we can take care of a couple of those capital projects, there's a lot of development that is just waiting to happen on that east side that we probably would see a little bit of an increase, not just one or two a year, but but multiples once that area opens up because we we've had to pretty much swelch most development because of the sewer problems. How many new units have we been regularly adding per year or which um I can actually pull that up right now. Um unit wise I'm not 100% positive but we've gained a little bit more revenue in this year. Like the water we've got $9,000 in this year. Storm drain almost 6,000 and sewer 2,450.

Yeah. Yeah. So one of the questions I guess kind of to the point a little bit is based on that last slide that you had where you said uh death service and capital you talked about that the SEC projection you earlier was taken into consideration for this which were also how how much of that $20 million was taken into consideration. So what like was I was assuming you didn't pay all $20 million.

Oh no no no because that again that's what's estimated to burn and so in the 20 year period I you know I think that you know the current SEC revenue as I recall was about $9,000 every year. So I think we've got that at maybe 50. It's tens of thousands not hundreds of thousands in additional annual revenue. So it helps to fund some of the cash funded capital. Sure. And that's basically

but so the whole 20 like 10% $2 million in the 10 year I would say yeah I mean it's um

I I can get you a more specific number but um I do think it was more likeund,000 a year or something from so a little million to basically Great. So just summarize the rate increases are needed immediately to restore basic operating contingency address inflation fund plan begin the plan recommendation. Um, one thing you can consider in addition, you know, just from a fairness affordability issue we talked about you the 30% could be uh implemented differently to the different customer classes. You could also implement an income qualifying low income program um to help customers that with targeted uh affordability issues that meet certain criteria. That's a very common approach. The systems development charges provide another important funding source for capital though as has been mentioned they're not going to solve the problem. Uh and uh that you know this plan really does rely heavily on state loan funding. Um and you know as you have additional conversations about what's doable more specifically these projections can be updated and uh you know it's meant to be kind of a middle of the road medium case scenario not best case not worst case so hopefully there'll be something slightly better and to that last point I think it's important to note currently financial

situation is as I mentioned before is a lot of us stay in your home program you guys just don't qualify for record and so that is another very uh critical part of this plan and what we're recommending is to get you on that solid financial footing so that you can qualify for those state money while still taking care of the infrastructure you want to be doing so you can't qualify Yeah, remember it's your debt service. You have too much debt essentially. Not enough um

we don't have enough cash on hand and we have too much debt. So, think of it when you you're thinking of your home life, your debt to income ratio. Right now, we're paying on too many um things that the banks don't want to lend us any more money. And along with that, we don't have enough cash on hand to apply for grants. Many of the grants that we would be eligible for require a pre-spend or a match um of 10 to 20%. And you know, when we have a a $1.5 million project, we don't have that 10% in cash that we can just allocate to do that to earn that extra money. Um so it's kind of a double whammy for us. So, in your guys's last presentation that you did where you recommended the 40% initial rate increase, um, contrary to the 30% this time, what are we sacrificing? I guess that makes sense to do the 30% rate increase and have a less steep rate climb. The there, let's see, there were two main uh cost components that were revised. One was the equipment back truck and the CCTV that which total together close to a million dollars. I believe we assumed that that would be rather than just you know raising cash that is needed in the next two to three years. I think the desire was sooner rather than later and I asking well could we buy another year or two? So what we did was assume that there'll be a loan, a shorter term loan, not like a major given because the the useful life of that kind of equipment is less. So you know, we assumed like a

seven or eight year loan to repay that uh over time just to spread it out. And um the other thing was the additional labor. So the facility plan recommends several more staff positions. We've included in this 10 years five staff and we made some adjustments to the assumed labor costs and the phasing of that to try to get that initial rate increase down.

And a third component of that also was we took some of those early on CIP projects and spread them out a little bit farther. So again, delaying that initial investment, we know they're a priority, but are they absolutely immediate needed year one? Maybe not. So with Kenny and his guys, we were able to and Sean and the rest of public works look at where we could spread those out, not compromise the system and try to lessen that burden. So th those were the three major changes that were made from our presentation to try to bring down that that first ripping off of the band-aid. Um you did see in years two and three those numbers are about 2% higher than our previous ones and so it was more of a a smoothing of the curve and balancing. But the one piece that did reduce the cost was again how we were looking at the cost per uh FTE for the future staff that's needed to run the system as it is and then as it continues to the future.

Thank you. Also remember, we're not making decisions tonight. This isformational. It's really happy information. Thank you. You're welcome. It's important. We appreciate you guys.

It's important. We realize sometimes the bearer of bad things, right? We're not sad at the sc every time I get something bad. But again, I mean, we we are doing our due diligence looking at the data that's provided based on city records, historical records for comps. I mean, this is nothing new that other communities aren't doing. These guys are just in a particularly charging situation given decision. We understand that our problems were birthed over 25 years ago. They were they were. And we're just showing how bad those problems are. They really have snowballed over the last several years.

They have um I mean, we were talking about emergency repair rates. how many you guys have been having for a year looking back the last decade uh you're going to set a record in 2026 already just through Q1 you've already had four repairs and there's a fifth one that's looking up and it's on the the watch sales for public work so the problems are real as are the costs anybody have any other questions Well, it's good to know at least the odds are on our side. Is that sarcasm? Maybe a little.

Yeah. You want to take a 20 minute break then? I think we should. Yep.

All right. Thank you. Thank you very much. Are we discussion today about a potential program for government Yes. Not exist.