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HomeMy WebLinkAboutWater Board - Minutes - 01/25/2001FORT COLLINS WATER BOARD MINUTES January 25, 2001 3:15 — 5:28 p.m. Fort Collins Utilities Training Room 700 Wood Street City Council Liaison Water Board Chairman Chuck Wanner (Present) Tom Sanders — 491-5448 Staff Liaison Molly Nortier — 221-6700 ROLL CALL Water Board Vice Chair John Morris — 491-0185 Members Present (A quorum was present) Tom Sanders, Chairman, John Morris, Vice Chair, David Lauer, Paul Clopper, Tom Brown, Bill Fischer, Rami Naddy, Ted Borstad Members Absent Robert Ward, Joe Bergquist, Dave Frick STAFF Mike Smith, Wendy Williams, Dave Agee, Dennis Bode, Gale McGaha Miller, Jim Hibbard, Bob Smith, Kevin Gertig, Owen Randall, John Nelson, Susan Hayes, Dennis Sumner, Bill Switzer, Sue Paquette, Matt Fater, Molly Nortier GUESTS John Duval, Assistant City Attorney Mike Ditullio, General Manager Fort Collins -Loveland Water District Lucia Liley, Development Attorney Virginia Brown, DAMS, Inc. (Fluoride issue) MEETING OPENED Chair Tom Sanders opened the meeting. The following items were discussed: MINUTES Paul Clopper moved that the minutes of December 7, 2000 be approved as distributed. David Lauer seconded the motion. The minutes were approved unanimously. Water Board Minutes January 25, 2001 Page 2 UPDATE: NORTHERN COLORADO WATER CONSERVANCY DISTRICT (NCWCD) Gene Schleiger was not able to attend but forwarded the following update on Horsetooth Reservoir: Because of an error in calculations of materials to be moved, contracting on Horsetooth Dam has been delayed for about a month. Construction is re -scheduled for the end of February or the first of March. Water is now coming up in Horsetooth, and the leaks have been substantially repaired. INTERGOVERNMENTAL AGREEMENT WITH FORT COLLINS-LOVELAND WATER DISTRICT The Water Board discussed, at length, the proposed intergovernmental agreement with Fort Collins -Loveland Water district at the December meeting. At the January meeting, Mike Smith began by giving some brief background information for the benefit of the new members, and those who weren't there in December. He explained that the water and wastewater utilities do not serve all the area within the City limits. The City is surrounded by special utility districts and water and sanitation districts that were formed in the 1960s. We have agreements with those, some informal, for service areas. Parts of the new areas developing within the City limits are served by the districts. Over the last 20 years, the City has worked closely with most of the Districts, especially with the Fort Collins -Loveland Water District, which is on the south side of Fort Collins and East Larimer County Water District on the north side. Through the years we have arranged various agreements to share and work together, enhancing regional cooperation. The agreement is the outcome of a joint request for assistance from the District and various builder/developers. Attorneys have developed an IGA where the primary areas of concern are in the southeast part of Fort Collins; basically south of Harmony Rd., east of Timberline, north of the Fossil Creek Reservoir area and west of County RV. It is an area that has been developing very rapidly in the last few years. This development is mainly in the District service area. For years, FCLWD has primarily been providing water to a more rural area. With the development of City Plan, which focuses on high density development, that has changed. The growth that is occurring in southeast Fort Collins is primarily in the District's service area. The District has been providing water to a basically rural, low density area, and now they are faced with serving a very high density area. Currently, the District's water development fees are much higher than the City's fees. The difference is primarily a result of two factors: First, the rising price of Colorado -Big Thompson (CBT) water and the fact that the District accepts only CBT water to satisfy its raw water requirement. The City, on the other hand, accepts a variety of water rights, most of which are not impacted by the price of CBT water. Second, the District's fee structure does not recognize or give credit for the lower water use per unit associated with higher density development. The District charges the same for large and small residential lots. When applied to high density development, the fee difference is dramatic. The District is concerned about these issues and is in the process of reviewing their raw water policy and development fee structure. They are looking at the possibility of accepting other water • Water Board Minutes January 25, 2001 Page 3 rights, besides CBT water, thus providing builder/developers with lower cost options. However, it is anticipated that the development and implementation of a new raw water policy and a new fee structure will take possibly 4-5 years. They came to the City, and we presented them with various options -one was to sell the District treated water wholesale and we would collect the plant investment fees and raw water requirements from these customers. "We would provide the raw water and treatment plant capacity. It's for a defined area, which I described earlier," Mike emphasized. How Proposed IGA would Function • The agreement applies to only specific subdivisions in the southeast part of the City. These are subdivisions that will be served by the District, but are within City limits. They are also subdivisions that could be served, with minimal effort, by the City in the future. • Developers and builders requesting water taps in these subdivisions will be served by the District, but will be assessed the City's water development fees, whatever those fees may be at the time of the tap request. The City will collect and retain those fees. • For each tap sold, the City will sell the District a corresponding amount of treated water to be delivered at a cost -of -service rate determined by the City Council. • The amount of water sold to the District would be adjusted annually, corresponding to the number and size of taps sold the previous year (This is based on a formula specified in the agreement.). Mike stressed that these will be District customers. The customer continues to receive the same service from the District. What they won't experience is the high development fees because the structure hasn't been modified yet for the District's high -density development. Issues Discussed • Why is there no time limitation? • How does this agreement affect the City? • Does this have a flavor of promoting growth and development? • Is the agreement subsidizing growth? • How does this affect the City's water supply master plan policy? In answer to the question of how long this agreement would go on, Mike said until the area is fully developed. There is a potential for 5,000 homes in this area. It was suggested at the December meeting that there should be a limit imposed. Should it be for 5 years, which would give the District time to change the rates and acquire more raw water, or perhaps 10 years? The December meeting was running late, so the Board decided to continue the discussion today. At the December meeting, the Board was assured that the agreement does not hurt the City. The City will be getting all its costs back, and it appears to be a win/win situation. As to promoting growth, some may say, let the developers pay the higher fees, but there are downsides to that in the long run. Staff also assured the Board that the City is not subsidizing growth. Perhaps with this arrangement, the homeowners may see less cost than if the developers had to pay the higher costs. Water Board Minutes January 25, 2001 Page 4 Regarding the effect on the City's water Supply, staff had done several scenarios that showed how the supply would be impacted if we had to serve people in the City that we don't serve now. Staff looked at a future scenario where there was an additional 10,000 ac-ft of storage. That 10,000 ac-ft. would have taken care of, not only the Utility service area, but an additional water district area that is inside the City. The impact is relatively small in the whole scheme of things; perhaps 1,000-2,000 ac-ft of new storage. Discussion By Tom Sanders' calculations, 5,000 houses would men an additional 3,000-5,000 ac-ft of water. "In terms of water use, typically we see about 4/10 of an ac-ft per house, so that would be roughly 2,000 acre fee," Dennis Bode said. "How about commercial?" Mike asked. "Commercial would make it a little higher," Dennis said. Mike said that anyone who built in that area would have to meet the City's raw water requirements. They would either turn the water in or give us cash in -lieu -of water. Tom S. asked about the District's policy. The District requires CBT, North Poudre or cash. The District's cash in -lieu -of is $12,000 and the City's is $4,500. David Lauer asked what happens to the City's capacity when the District takes back the responsibility, "or are we assuming they aren't going to take back the responsibility?" "The District can terminate the agreement. If they did that, they would take back the responsibility. As long as the agreement is in effect, we will continue to sell the District the water that is equivalent to what has been developed. That will go on even after the area is filled up," Mike explained. "Even if we stop at 5 years, whatever has happened until then, we would continue that permanently," he added. "So this is envisioned as a permanent shift from the sources of water that the District is using now?" David asked. "That's right," Mike answered. "What would change at that point?" David continued. "The only thing that would change after 5 years, is that any other new development would go straight to the District," Mike replied, "so any new development would be the responsibility of the District." Bill Fischer said any user in this service area would get a bill every month from a water utility. "Would it be Fort Collins or the District?" "It will be the District. We get the raw water and the plant investment fee," Mike responded. "In addition, we charge the District a rate for operation and maintenance of our system to get the water and to treat the water." Bill also asked the District Manager Mike DiTullio if the District would prefer not to have a term limit on this agreement, particularly because of the construction of pipelines. "The only thing that would really change would be the economics of the supply of the water," Mike D. replied. Bill asked, "What happens, at the end of 5 years, if half of the area is developed and half is not?" "Two things: if we haven't developed our River water, developers would have to purchase CBT water at whatever the rate is. If we have moved forward enough to where we are accepting the Southside Ditch waters, they would do that. With either scenario, we would continue to provide the service. What this does now is allow the use of River water from the Southside Ditch waters that the City now has in its inventory, while we develop ours to put into the Pleasant Valley Pipeline," Mike D. explained. Mike Smith added that in the actual developments, the District will be overseeing the installation of lines. Their lines will be connected with their system. The Water Board Minutes January 25, 2001 Page 5 connection to the City's system is not close to this. Mike D. said that all of this development drains into the South Fort Collins Sanitation sewer system, so that's the other tie, which we maintain on the south side. Paul Clopper assumes that this development is entirely in the urban growth boundary. "Yes, but it's not yet all in the City limits," Mike S. responded. "These subdivisions would have to be annexed into the City for this to happen," he added. Tom Sanders asked if there is any issue about the water going to South Fort Collins as far as the ability to exchange and use it in the future. Dennis Bode doesn't think that is going to be an issue. It basically ends up in the Fossil Creek drainage, so it's very similar to where our water ends up. Tom S. pointed out that somebody would have to pay $12,000 and we are allowing them to pay $4,500. "At the end of 5 years, let's say, if the agreement ends and responsibility reverts to the District, what are they going to deliver to the City?" "The only thing that will continue to happen is all the water that has been turned in to serve development up to that point, we will have, and we will continue to treat that and deliver it to the District," Mike S. replied. "For future development, it will go directly to the District." Tom also asked how much Southside water the City has available. "The water can come from anywhere," Mike S. said. "We don't really care because we can use all of it," he added. "If we had to use some of our Horsetooth water, we may be getting the short end," Tom insisted. "It's hard to say where the water comes from. It's where water resources staff makes it come from on paper," Mike said. John Morris said the scenario that was presented to the Board originally, was that we would help the District in the 4-5 year time frame while they get their fee structure and raw water policy up to speed. "It seems the discussion now is whether we should continue it forever." "The discussion was that it would take 4-5 years for the District to do that. The District's preference is to allow it to go on until the area is full," Mike S. responded. ACTION: Motion After a number of attempts, Bill Fischer presented the following motion, which John Morris seconded: Bill Fischer moved that the Water Board recommend to the Council that they approve the IGA between Fort Collins and the Fort Collins -Loveland Water District under the following conditions: (1) The IGA recites that it is for an initial 5-year term; and (2) At the end of the first 5 year term, the parties shall meet to determine the agreement's effectiveness and desirability, and at such time Fort Collins may elect to do either of the following: Water Board Minutes January 25, 2001 Page 6 (a) Continue serving new users for an additional 5-year term under the term of the agreement, or (b) Not serve any new users. (3) If the second 5-year term is elected by the City (paragraph (2)(a), at the end of the second 5- year term, the parties shall meet to determine the agreement's effectiveness and desirability, and at such time Fort Collins may elect to do either of the following: (a) Continue serving new users for an additional 5-year term under the terms of the agreement, or (b) Not serve any new users. Tom Sanders wondered if we should also include the conditions of termination, e.g. we get back all the water we received, etc. Assistant City Attorney John Duval said the agreement already addresses that whole issue. "Whatever water has been turned in, we keep as long as we are providing them the wholesale water that we are selling them and charging them for. The houses that pay us directly through the developments continue to get their service through the District. It's just the future development that goes directly to the District," John explained. John reiterated that the agreement allows the District to terminate any time they want, but the City doesn't have to give any water back. If they want to take over the service and not buy water from us, that's their decision to make. He emphasized that they don't get any money from the City, the raw water requirements or the plant investment fees. Tom Sanders asked if the City can terminate any time. "No, we can't," John replied. "Our agreement provides that as long as the raw water requirements etc. are paid, that we will provide water at the wholesale cost in perpetuity, unless the District breaches the agreement. If they decide to provide the water themselves, they have agreed to indemnify the City from any claims that may be brought against us for not providing service, because they terminated the agreement." Tom asked if these customers will eventually be in the City. "For them to be involved in this agreement, they have to be in the City," Mike S. answered. He added that they will be paying District rates, which are a little higher than the City's. Mike DiTullio said that the District will charge a rate that reflects the cost of the City's charges. "That area will have a different rate from the rest of our customers." Bill Fischer asked for comments on his motion. Tom Sanders said he liked the idea of an assessment at the end of 5 years and the opportunity to terminate the agreement. Bill added, "and it has flexibility. If it is working well, we can extend it too." Bill also asked Mike DiTullio if he had a problem with that. "I don't think we will have a problem," he replied. Paul Clopper said it seems to be a straightforward task to track where we are at any point in time. He agrees with Bill about the flexibility of his proposal. It sounds like an ideal way to structure this. Water Board Minutes January 25, 2001 Page 7 Ted Borstad asked if it would be better to know, from the City's standpoint, that you are going to forecast growth all the way through the 5,000 homes. "For a 5-year period, does that make planning easier or harder for either water provider." "It's a little hard to not know," Mike Smith replied, "but when you are talking about this increment, it's probably not a critical issue. When we make projections on future needs for storage, staff has already made projections showing one or the other option. We have a window of flexibility." Chuck Wanner commented that we should assure ourselves that this agreement won't cause the rates of Fort Collins ratepayers to go up because we commit supplies that we can't retract, and we end up in somewhat the same situation that the District is now. "Is this going to cause enough constraint on our supplies that we can use out there to cause our rates to go up?" he asked. Mike Smith said it shouldn't. Tom Brown asked if this agreement, in any way, constrains the City from changing its cash in - lieu -of rate and its raw water requirement. "We could, next year, raise the cash in -lieu -of up to $12,000 if we felt we needed to; is that correct?" Mike S. replied in the affirmative. "We don't anticipate a change in the raw water or cash in -lieu -of rate in the near future. We are going to be reviewing our plant investment fees this year. One of the Council members is encouraging us to do that," he said. David Lauer said he has been struggling with this ever since it came up in the Water Supply Committee. "I have been trying to find a compromise where I can vote in favor of it," he related. He emphasized that he has nothing at all against the Fort Collins -Loveland Water District, "in fact, they do an excellent job." He also said he has nothing against IGAs. They create greater efficiencies. He contends that this is a public subsidy of growth. "In my point of view it's excessive growth. I would much prefer it if we could keep it at 4-5 years, and that would be it. Even though, as Mike Smith says, things aren't going to change that much, that would give the District a long enough period of time to adjust their rates from a rural orientation to an urban orientation." He emphasized that that is all Fort Collins should be required to do. Bill said, under his scenario, that is all we would be obligated to do, but this would simply allow Fort Collins the option, with or without cause, to continue it for 5 more years or cease it at 5 years. "All we are doing is leaving the door open," he said. ACTION: Vote Bill Fischer repeated his motion. Chair Sanders clarified that the Board would be voting to approve the agreement with a time period. He asked if there was further discussion. Rami Naddy returned to the idea of this agreement encouraging growth. "Would it be possible to increase the rates to what the rest of the people in Fort Collins will be paying, and perhaps use that extra money for some of the other things we deal with, such as stormwater." "It wouldn't be allowed under the City Charter to charge people water fees and put it into the Stormwater fund," Mike S. responded. He added that the rate that the City is charging the District is a little less than Water Board Minutes January 25, 2001 Page 8 we charge other customers because it's a wholesale rate, and we don't have some of the costs that we have with certain other customers. As he understands it, the District is going to pass that rate along to the customers, so those customers will actually be paying more than other District customers. "It could very well be as much as or more than our rate," he said. Tom Brown asked David Lauer what he meant when he suggested this agreement would subsidize growth. "I have heard many times that you shouldn't be using water as a policy tool for land use or open space, etc.," David began. "The more I think about that, the more I realize that every entity in the City of Fort Collins can make the same argument that they are not responsible for looking at the large picture. They are only responsible for looking at, in our case, supplying water to citizens that are in our boundaries. It doesn't hold water with me. I can't help but think that current residents, that we are responsible for representing as an advisory group, are going to pay for new residents coming in at the expense of the natural environment. The more people there are, the more threat and degradation there is to the Colorado Front Range. I think that, whatever solutions there are to that, should not be at the expense of the current residents of the City of Fort Collins," he concluded. Rami Naddy asked if it is appropriate, as a new member, to vote on an item on which he has little information. Tom Sanders said he is going to abstain because he missed the last meeting when the Board went into great depth on this issue. "If you are a new member and you feel you don't have enough information and background, it is appropriate to abstain," he said. Vote The motion passed 4-1 with 1 no and 3 abstentions. David Lauer voted no because of what he stated earlier. Tom Sanders and new members Rami Naddy and Ted Borstad abstained. STORMWATER FINANCING ALTERNATIVES Dave Agee began by explaining why the Board is discussing this issue. Board members have toured the Canal Importation Basin and have seen some the figures that have been discussed for the construction costs of stormwater improvements in that basin. The purpose for discussing this today is to get some direction from the Board in terms of what some of the alternatives might be. Background In 1998, the Water Board and Council approved a city-wide approach to financing stormwater improvements. Based on estimated total city-wide costs of $68 million, it was estimated that construction of the City's stormwater improvements could be completed within a 15-year time period. Based on financial models developed at that time, this could be done with monthly fees going up around 50% from 1998 levels. In the meantime, the City is updating the master plans for all the drainage basins. In 1998, the estimated cost of the improvements in the Canal Importation Basin was approximately $24 million. Now that the City has adopted new rainfall standards, and a new master plan for this basin is nearly complete, the costs are approaching $50 million. In the Old Water Board Minutes January 25, 2001 Page 9 Town Basin, costs, which were estimated at $14 million in 1998, are estimated to reach $20 million. Assumptions Dave listed some of the assumptions that went into the information included in the packets. • Staff is estimating at least $120 million in current dollars to complete all of the improvements. "We have reached that conclusion without a great deal study," he acknowledged. He added that we have to revisit our financing plan to pay for all of this. He said that much of this has to be done far into the future, so those numbers, even if we try to be precise, are somewhat fuzzy, but staff thinks the estimates are in the ballpark • Staff will be using an inflation rate of 3% a year, in the borrowing scenarios. • Staff is proposing that we use 20-year municipal bonds. • Staff is using conservative growth projections for the future. • A major part of the funding will come from monthly fees. In 1998, when staff looked at this, they determined that the monthly fee was the method to pay for these improvements, because development fees are up and down in terms of regularity. If growth slows down, the fees slow down, and development fees are not a large portion of the revenue in the storm drainage fund. Factors in the Decision • Fees may have to go extraordinarily high if the original timetable is followed. In 1998, the Water Board and the Council approved a 15-year time frame to construct these improvements. "If we continue on that, with approximately 13 years remaining, fees are going to have to get very high in order to follow that timetable," he reiterated. • Under the borrowing scenarios, the last of the debt won't be paid off until 20 years after the improvements are completed. "If we keep borrowing on into the future, and we get our improvements built, we're still going to owe a lot of money. That may not be a concern, but it's at least a consideration." • Reduced coverage may be an option. "We have discussed the idea that, in particular basins or particular areas in basins, that we might want to recommend 50-year protection instead of 100-year. • Lengthening the timetable is probable. Based on some of the numbers that staff' has run, that appears to be probable. "It will be difficult to try to complete everything in the original timetable and keep the fees somewhat reasonable." Financing Alternatives Alternative I — Thirteen Year Schedule Using Municipal Bonds • Meets the original 15-year schedule. • With 13 years remaining, average rate increases of 11% per year in monthly fees. Right now, for a typical residential customer, that's $8.13 a month. • By 2013 monthly fees for atypical residential customer would be $28.00 a month. Water Board Minutes January 25, 2001 Page 10 • By 2013, monthly fees for a 100,000 square foot commercial customer with a heavy run-off coefficient would be about $660 per month compared to the current $189. Alternative 2 —Thirteen Year Schedule Using Pay as You Go • Meets the original 15-year schedule. Dave said that we already have $10 million plugged into the budget for this year. "We will be taking that to Council this spring. We need to do that to keep this on track," he stressed. • Double the fees in 2002. Staff will continue to keep it in the budget for this year, but if after that, we were to stop, and strictly use "pay as you go," it would be necessary, in order to get this done in a 15-year time period, to double the fees in 2002. • Fee increases of 8% from 2003-2007. • By 2007 monthly fees for a typical residential customer would be $24 (compared to $8.13). "That's a little less than the $28 with municipal bonds. One of the reasons it's a little less is, in order to meet our bond coverage requirements, we have to have adequate fees to pay that debt service, plus a cushion for operation and maintenance expense." • By 2007, monthly fees for a 100,000 sq. ft. commercial customer with a heavy run-off, would be about $555 per month compared to the current $189. Alternative 3 — Twenty Five Year Schedule Using Municipal Bonds • Fee increases of 6% from 2002-2005. • Fee increases of 5% from 2006-2018. "2018 is kind of a magical year because the $20 million that we borrowed in 1999 basically gets paid off. We have the capacity to borrow additional money after 2018 without raising the fees a great deal. • By 2018, monthly fees for a typical residential customer would be $19 (compared to $8.13). • By 2007, monthly fees for commercial would be about $450 per month compared to $189. Alternative 4 — Twenty Five Year Schedule Using Pay As You Go • Increase fees in 2002 by 40%. Dave recalled that a Board member asked last month what would happen if we raised the fees substantially right away. If we stopped borrowing after the bond issue that we are planning for this year, and went strictly "pay as you go," in order to get this done in 25 years, we would have to raise the fees by 40% next year. We would go from $8.13 to $11.38 in 2002. • Fee increases of 6% from 2003-2009. • By 2009, monthly fees for typical residential customer would be $17 compared to $8.13. • By 2007, commercial customer would pay about $400 per month compared to $189. Process Council has scheduled a study session on the Canal Importation Basin Master Plan on April 24`h with a Council meeting on May 15a'. Dave thinks it is important, as we take this to Council, that we at least have a good idea what direction we are heading with the financing plan. He also mentioned that the budget process will begin soon. We have to have a budget to the City Manager by the end of May. Water Board Minutes January 25, 2001 Page 11 Dave mentioned that these aren't all of the alternatives that staff could have introduced. He said he wanted to give the Board at least some idea of the possibilities, and see if Board members have alternatives they wish to explore. He said at the February meeting staff would like the Board to focus on a scenario that they are comfortable with. Discussion Tom Sanders pointed out that one of the major reasons for the increase in costs for stormwater improvements, is the new rainfall criteria that were adopted after the 1997 flood. He said, it appears that the Board wants to remain with that standard and not return to the old one. He also understands that the Board agreed at the last meeting to stay with the 100-year flood protection. "Those are two variables that we can eliminate." He then brought up the issue of the construction time period. He prefers 15 years and thinks 25 years is too long. Tom Brown did not see any problem with 25 years. John Morris agreed. "When that agreement was made we were under a certain criteria and that criteria has changed. We might have to make some adjustments," he stated. Tom S. said that we need to calculate the risk of a 100-year flood in 15 years and 25 years. "We must discuss that," he asserted. John said, the Board agrees that we need to stay in a time frame where people still remember the flood. In 10 years they are going to forget why they are paying the high fees. "Maybe we need to decide today to bite the bullet early while people in this town remember the flood, and increase the rates significantly this year," Tom S. suggested. Tom Brown asked what happens to the fees in the future once this work is paid for. "I'm assuming if it's `pay as you go', it will be a lower total cost because you are not paying interest. I assume there will be a time when the fees go down to a minimum level," he said. "Yes, that's right," Dave Agee replied. "Presumably, once the improvements are paid for, the fees would then go for the operation and maintenance of the system." "What are the dates for the different scenarios?" Tom B. asked. "Staff would have to run those numbers," Dave answered. "The debt scenario, for example, under the 25-year with debt, in 2025, we still would have $90 million worth of debt payments left, the last of which would not be paid until 2045. With 'pay as you go', if we were to not borrow any more than what we have planned for 2001, in 2021, all of our debt would be paid off," Dave explained. "Under the 25-year scenario, by 2025, we would theoretically, have all the improvements built, and at that point, or whatever point warranted, we could conceivably lower the rates to just for O&M," he said. Paul Clopper thanked Dave for presenting the different options. He was particularly encouraged with the aggressive fee increase with the final option. He believes that the institutional and societal memory of the 1997 storm is important, and it's fundamental to a lot of changes the Board helped institute with the Stormwater management program in the last 3 years. He also liked Tom Sanders suggestion to examine all the variables. He said he is not uncomfortable with sliding the time scale, given the fact that we are playing with different numbers now. "I would be absolutely against backsliding on the level of protection and the public risk associated with going to a policy statement that assigns a stormwater management design to less than 100 years," he emphasized. Water Board Minutes January 25, 2001 Page 12 David Lauer asked if it is possible to mix and match using municipal bonds and "pay as you go?" "Absolutely," Dave Agee responded. "Would there be some advantage to that," David continued. "With municipal borrowing, you can get the improvements in place sooner because you have funding. Of course this is all subject to the construction people being able to complete the construction in a shorter time frame. Assuming this can happen, you get the improvements done sooner because you borrow at a certain rate and that interest rate is locked in," Dave explained. If inflation were to exceed 3% or even the interest rate on the borrowing, we could conceivably have some advantage by locking in now when rates are fairly low. David L. thinks we ought to think in terms of a combination of municipal bonds and an accelerated fee rate of 40-45%. "I think we ought to take advantage of the low interest rates," he said. Dave A. said the lowest rate we have had was below 4% on the 1998 water bonds. Now, it's still below 6%. Chuck Wanner said his question, and probably for the Council too, would be what is the difference in the timing of when these things are completed in these four scenarios? "What I tried to do in these models, is keep the schedule moving," Dave A. responded. "For example, with the 25-year, whether it was debt financed or `pay as you go,' we started with about $5 million worth of improvements right now, and continuing that on into the future, except inflating it." "When will the final physical completion date be for all of the projects?" Chuck wanted to know. "The intention is, under the 25-year scenario, they are completed," Dave replied. "Under some of the other scenarios, it would be constructed in 13 years?" Chuck asked. "That's right," Dave said. Chuck said there has to be a way to compute the probabilities and the cost/benefits of the risk by not having them in place. "Obviously, it's cheaper if we pay for it ourselves because we don't pay interest," he noted. He reiterated: "How much cost, reflected in risk, is involved in the 12 years of having that percentage of the improvements that would not be in place?" Tom S. said his biggest concern was the build out of 25 years versus 13, and the risk associated with not having protection. Dave A. said he would defer to Susan Hayes, Stormwater Engineer, to look at that. "One of our strategies is to do the improvements first in the basins where we get the biggest bang for our buck in terms of protection. That's why we are building big projects in Old Town, for example," he related. "That takes care of a lot of problems early on, so we have to factor that in as well," he added. Dave A. pointed out that staff doesn't have one particular strategy in mind over one another. It's really a discussion among Council, although staff is concerned about the amount of debt service as a percentage of our operating expenses. In some of the scenarios we ran, there is huge debt service, like 60% of your operating budget going for debt service. "That's pretty scary," he said. If growth and the economy slow down a lot, people might start saying they didn't use any so they aren't going to pay for it. He emphasized that staff is concerned about the level of debt. In some respects, staff is in agreement with David Lauer on this. At the very least, the answer may be to come up with a combination. Chuck said it may be hard to sell. "Maybe the best thing to do is bite the bullet, pay for it and get it done, and not waste money on interest payment," he suggested. "David L. asked if that was a realistic alternative. "Can we do everything we need to Water Board Minutes January 25, 2001 Page 13 do without borrowing?" "That's going to have to be up to Council to decide how much heat they are going to take over raising the rates that high," Dave A. responded. Chuck acknowledged that he doesn't know about the next Council's willingness to inflict pain. "We need to look at a balance of timing, rate impacts and risk," Mike Smith stated, "and somewhere there is an answer." Some people say that rates are too high already. Staff will say, okay, we'll get the improvements done in 25, 30 or more years, and that's too long. "With those variables, you can perhaps analyze the cost of the risk," Jim Hibbard said, "but you might be running numbers that have a false precision to them. How high is high enough for the rates; how long is long enough for the build out? Can you get a precise answer in a box based on some cost/benefit ratio? "I realize that, but, on the other hand, you try to get as much information as you can," Chuck contends. He said the ratepayers are investing the money and it doesn't make the Utilities' balance sheet look heavy with debt. Ted Borstad related that he's been through three "once in a lifetime" floods. He remarked that they happen more often than you think. People become complacent when it's not raining. He thinks that we need to be aggressive and get on with the improvements. Eighteen years from now, we don't want to be looking at a major flood that we weren't ready for. Tom Sanders made the calculations that he referred to earlier. If we build out in a 15-year time period, there is a 14% chance that we could have a 100-year storm or greater, in a 25-year time period, a 22% chance. He emphasized that this is theoretical. Tom S. also likes the idea of a blended approach. If the bond rate is low now, we should get bonds. If we can buy them back and sell them, when things change, as we've done before, it would be worthwhile. ACTION: Motion and Vote Rami Naddy asked if there has been any public outreach on this. It seems there have been some concerns about doubling the fees. Dave Agee said there has been extensive outreach on what we have done in the past. "We went up 21% in monthly fees at the end of 1998, in 1999 we didn't go up at all, and in 2000 we went on 10% and 9.3% in 2001. The public is aware of this, but I don't think Council would want us to proceed with this without outreach of some kind. David Lauer said, as far as the fee increase, we have to look at it in the context of the overall picture. There are fees outside the Utilities that we need to be concerned about, e.g. gas fees going up rapidly, etc. "I think it's important for us to be aware of the bigger picture, as we consider this," he stressed. First Motion Bill Fischer moved that the Board ask staff to look at a blended approach to financing for the original 15-year construction period. Paul Clopper seconded the motion. The Board voted unanimously to support the motion. Water Board Minutes January 25, 2001 Page 14 "All of this depends on timing, Dave A. said. "If we were to raise the fees enough, we could borrow a significant amount of money up front and really get a lot done, but that's subject to the engineers being able to build it. I don't know that you want to constrain us." Staff can come back with some scenarios, which will give you more options to decide from. Bill Fischer said his thought was for staff to use their best judgement in coming up with the alternatives. Second Motion John Morris moved that staff consider equivalent "pay as you go" to be completed in 20 years. David Lauer seconded the motion. Tom Sanders clarified that whatever the mixture is, it will be completed in 20 years. He thinks that the advantage of borrowing is that we are doing a lot of big projects in the beginning where we need money that we don't have. The philosophy should be that you borrow so that you can stay on schedule and get it done when you want it done. Tom Brown mentioned if there is land to be purchased, it might be best to have the money to purchase it sooner, because land is going up in price faster than the rate of inflation. Mike Smith pointed out that when staff sees critical facilities that need land, like detention basins, we try to acquire them, even though the master plan may not be approved, because of the land costs. Dave A. emphasized that staff always looks at opportunities to buy land. Dave A. also clarified the motion by saying that it is directing staff to borrow a lot of money soon, so after 5 years we don't borrow any more. Paul Clopper called for the question. The Board voted unanimously for the motion. Staff said they will bring additional scenarios to the February meeting for the Board's consideration. DISCUSSION REGARDING AMENDING CITY CODE TO INCLUDE WATER, WASTEWATER AND STORMWATER DEVELOPMENT REVIEW CHARGES Action Requested The action requested from the Board on this item, was a recommendation that the City Council either approve or not approve adding development review charges to the City Code. Dave Agee explained that development review charges are related to the Council concept that growth should pay its own way. Council has asked the Utilities to look at charging for our development review process, which we currently pay for with existing fees. Financial Impact The cost of providing development review services is currently home by the City's ratepayers. The costs amount to approximately $135,000 each in the Water and Wastewater Funds and $340,000 in the Storm Drainage Fund to perform this service for our customers. There has been discussion among staff as to whether to recover half or all of these costs through a development review charge. Water Board Minutes January 25, 2001 Page 15 Board members received a list of Water/Wastewater Review charges (to be paid at the time of permitting) in the agenda item summary. Those are based on the concept of the equivalent residential unit. (ERU). This is intended to make the fees easy to understand and administer. The amount for 50% cost recovery was also included for each category. Water Development Review Charges (charges to be paid at time of permitting) 100% 50% Cateeory Recovery Recovery Single Family $ 90 $ 45 Duplex (each unit) $ 70 $ 35 Multi -family Commercial'/T $ 220 $ 110 Commercial I" $ 570 $ 285 Commerciall-1/2" $ 1,130 $ 565 Commercial2" $ 1,650 $ 825 Commercial3" $ 3,460 $ 1,730 *$70 per dwelling until for 100% recovery or $35 per dwelling unit for 50% recovery Wastewater Development Review Charges (charges to be paid at time of permitting) 100% 50% Cateeory Recovery Recovery Single Family $ 90 $ 45 Duplex (each unit) $ 70 $ 35 Multi -family Commercial3/4" $ 220 $ 110 Commercial I" $ 570 $ 285 Commerciall-1/2" $ 1,130 $ 565 Commercial2" $ 1,650 $ 825 Commercial3" $ 3,460 $ 1,730 *$70 per dwelling unit for 100% recovery or $35 per dwelling unit for 50% recovery Water Board Minutes January 25, 2001 Page 16 Stormwater Development Review Charges (charges to be paid at time of permitting) 100 % 50% Category Recovery Recovery ERU $ 125 $ 63 Questions for Board • Does it make sense to do this during the permitting process versus the development review process? Staff had identified a concern about payment of the Development Review Charge during the permitting process as opposed to the development review process. If it is paid during the permitting process, it will be easy to administer. However, if a builder buys a property from the developer, he would have to pay the fee even though the development review process had been completed. Arguably, this would be reflected in the purchase price, but could be a point of contention. Bill Fischer asked when the work is done. "It's done in the development review process," Dave replied, "so it would be done actually before the permit." Do you think 50% or 100% cost recovery on this? Dave said this was looked at a few years ago. At that time they considered the idea of capping the rate at a 2-1/2" tap size. We might do that for the reason that development review doesn't take that much more time for a 3" than a 1-1/2" tap. Dave said we don't have to cap it at a 2-1/2" tap. That's just a question for the Board. Dave mentioned that this would be subject to some kind of public process. "We'll also let the developers know." Tom Brown asked why staff proposed a 50% recovery. Dave replied, "to ease into it." Bill Fischer thought it was to make sure that housing is as affordable as it can reasonably be. He added that these, in and of themselves don't make a house unaffordable because they are fairly low. Mike Smith said part of the answer is that it was suggested by one of the Council members. He was interested in 50%, although he was okay with 100%. He suggested that development review is a service that the Utilities should provide, and perhaps the ratepayer should pay a part of that. Tom Sanders asked what percentage would this be for ratepayers currently. Dave Agee replied that we have a $20 million budget in the water fund, so $135,000 is minimal. "So if we do it at the time of permitting, this will not be in the rates," Tom S. clarified. Mike S. related that this came up because there is continued interest on Council that development should pay its own way. "If kept at 2-1/2 inch taps, is that equivalent of the 50% recovery?" John Moms asked. "That's just another scenario that was suggested the last time this was brought up," Dave A. replied. Water Board Minutes January 25, 2001 Page 17 "That might be 50% of a three inch." Bill suggested for example, that everybody pays up to 1 inch at 50% and everything over 1 inch is 100%. Dave explained that attorneys become concerned with these kinds of charges if you don't equate what they are paying, to some service they are receiving. "Maybe Council could find that it's okay to pay 50% up to a certain point, and 100% after that, but I'm not an attorney, so I don't know," he added. Tom B. asked how the numbers ended up as they are in the tables, e.g. $3,460 for a 3" commercial. "Does that reflect a real estimate of the cost?" "Again, it's an estimate based on the concept of the ERU," Dave replied. "The bigger you get, in terms of your tap size, the more complex the review process is. It's the best attempt at an estimate we can make," he said. "It's a way to try to assign those costs." "I thought you said earlier that the cost of a 3" isn't much different than a 1-1/2", Tom continued. "I'm saying you could argue that, in terms of time, it's a diminishing scale." Jim Hibbard said it's highly variable. In terms of what the crews do, you can average it. "You might have a 2" tap on one development that takes considerable time, while on another development it might take much less time," he explained. The bottom line is, when you get into the larger taps, the last time we looked at this, there was some concern that those numbers were getting too large. As a result, there was some attempt to put an artificial cap on it. "What you need to do is look at the size of the numbers and determine if that's getting out of hand with regard to a development review fee. I think there is some basis for saying that." He added that we don't get a 3" or larger tap very often. ACTION: Motion Tom Brown moved that the Board recommend a 100% recovery for the development fees using the best staff estimates of what the actual costs are, on average, for each of different size services. Paul Clopper seconded the motion. John Morris suggested adding 100% up to the 2" tap, but that was not included in the motion. Further Discussion Bill Fischer recalled that, historically, there has been some thought that the City should provide this as a service of the City to some degree. "There have been some who feel that 50% is more desirable because they think that development review is, to some degree, a service that the City should provide," Mike Smith responded, "so ratepayers should share in the cost of development review." He acknowledged that it's an argument that probably has a counter argument. Paul Clopper said there is a precedent for development review charges in the area of solid waste management in permitting landfills and other types of disposal facilities. He provided an example of that process. The philosophy of recovering charges associated with reviewing some proposal for development, in this case solid waste management, already exists. Rami Naddy was curious about what is known about charges in other cities, etc. "We haven't researched that," Dave A. replied. Jim Hibbard said the City already collects development review charges in the planning and engineering departments. David Lauer asked if staff has a recommendation. "Because of concerns by some people and the Council, and to be consistent with our other policy to collect at 100%, there is no question that Water Board Minutes January 25, 2001 Page 18 we should do it," Mike Smith responded. He thinks the structure is set up with the size of taps for it to be done at permitting, because we know what the size is. At the time of application, we don't know all of the tap sizes. ACTION: Vote John Morris asked if there is some kind of structure when you go up to the larger tap sizes. "Probably what we would do, as is done with PIFs, etc. is negotiate that," Dave Agee replied. Tom S. repeated the motion and called for the vote. The Board voted unanimously for the motion. FLUORIDATION UPDATE At the December meeting Gale McGaha Miller gave a presentation on the history of fluoridation and arguments for and against the practice. Kevin Gettig talked about fluoridation practices, quality control measures and operational issues at the City's water treatment facility. This controversial issue was referred to the Engineering Committee. They will meet in February to determine how they want to approach the problem. They will consider other water additives as well as fluoride. Gale briefly reviewed what had been presented and stated that, due to the length of the meeting, the Board was not able to ask many questions about the subject. She wanted to give them an opportunity to do that. She said that the City has been fluoridating the City water since 1967, based on direction from the City Council, which in turn was based on direction from the voters. We have been fluoridating to the recommended level of 1.Omg/L. Fluoridation of drinking water has been promoted by the Public Health Service since the 1940s as a prevention of dental cavities. It's been controversial from the beginning. People who oppose fluoridation of drinking water point to studies that show correlation between fluoride exposure and a number of mental and physical health problems. There seem to be scientific studies on both sides of the spectrum, which had led to "a war of scientists." Gale said the issue has been brought to the Board because some concerned citizens raised the issue to the Mayor who, in turn, discussed it with Council and Council passed it to the Water Board and asked for some advice. Virginia Brown, a resident of Fort Collins and an active member of an international organization called DAMS, (Dental Amalgam Mercury Syndrome) whose mission is to educate the public on the hazards of toxins in dentistry, came to the meeting to promote her reasons for opposing fluoridation. She brought a publication from DAMS that discusses fluoride and neurological disorders, among other things, and a newsletter from Dartmouth that contains information about a study that finds a correlation between fluorides in water and lead levels. Articles about other hazardous substances were also included in the newsletters. She brought copies for Board members and staff. She expressed strong opposition to the City's use of fluoride in the drinking water, and would like to convince the Utilities to end the practice. Water Board Minutes January 25, 2001 Page 19 Virginia contends that "we are poisoning our children because fluoride is a poison and an unapproved drug." She said we have no idea how much fluoride our children are getting. She emphasized that there is a tremendous amount of evidence coming out about the ramifications of its long term and continued use. She stated that it's not right that entities put a poison in water and other items that we have no informed consent on. Our children not only get it in fluoridated water, but in their formula, soups, toothpaste, juice, dry cereals; there are 1300 products that contain fluoride. "We don't know how much different children get. Of course, adults get it too." She mentioned an active organization called Consumers for Dental Choice, and there is quite a lot of legal action that is beginning to emerge with that organization and other groups. Gale said there have been some recalculations of fluoride exposure in recent years from nutritional sources. Back when fluoride was first promoted, it seemed that there weren't very many sources of fluoride in diets. Now, as Virginia stated, recent calculations have shown that there is a very high level of exposure in diets now. There is concern from some people that we are being overexposed. It was mentioned at the December meeting, that this is a good time to explore this issue because the treatment facility is in the midst of upgrading the fluoride system, which is about a $300,000 improvement. Tom Sanders asked when the Utility will make the decision about the upgrade. Kevin Gertig said, originally, construction was to begin in about a month. That has been delayed for about nine months. Tom asked, and Kevin confirmed, that they budget about $95,000 a year for fluoridation, correlated with the demand. Mike Smith added that there is also a concern about handling a very dangerous chemical. Tom S. stated that he was an avid, long time supporter of fluoridation, until he began reading some of the information in opposition to the practice. He thinks it's time we take a serious look at it. He added that he wants to look at all the chemical additives, including alum and chlorination. As mentioned earlier, the Engineering Committee will be begin discussing the scope and direction it wants to take on this issue. Tom appointed new members Rami Naddy and Ted Borstad to the Committee and he appointed Paul Clopper to chair the Committee. Mike Smith requested that the Committee pursue the fluoride issue first. Tom S. mentioned a potential problem, since we now share water with other districts who may not want to address this issue. When Rami Naddy, a toxicologist asked about cavity fighting evidence, Gale responded that the research is all over the board on this. "Frankly, it's very difficult to find scientific studies that are not sponsored by extremely biased organizations," she stressed. "As a toxicologist, you will find this fascinating," she added. Initially, early in the history of this issue, it was determined that one part per million, which is recommended by the EPA, provided an appropriate level of prevention of cavities. "That almost became a sacred cow that went on through the decades," she said. She went on to explain that there are differing opinions on how much fluoride can cause problems with fluoridosis. EPA said anything above 4, but detractors say you find toxilogical problems even at 1.0, especially if you consider all the other sources of fluoride. Gale mentioned last Water Board Minutes January 25, 2001 Page 20 month that the Union of EPA Scientists have taken a stand against fluoridating drinking water supplies. It seems to Tom Brown that the other sources of fluoride that Gale mentioned, are very important in all of this. It is assumed that fluoride protects against cavities, but it's bad if you have too much. "The issue is, how much are we getting from all the other sources. If we get an adequate amount from brushing our teeth, for example, then we certainly shouldn't be adding on top of that," he concluded. "That launches us into a side issue," Gale said, "and that is whether the protection comes when the teeth are being formed, and thereby from the ingestion of fluoride in water, or whether the protection comes from topical application once the teeth have emerged. People line up on both sides of that issue as well," she pointed out. Tom Sanders asked Paul Clopper, new chair of the Engineering Committee, to arrange for a meeting in February. He asked other Board members to read about this issue, so we can begin to acquire some good scientific information. "We will hope to have a decision on this issue before the money is spent on upgrading the fluoride system," he concluded. Due to the full agenda, the Proposed Change in Cross Connection Control Regulations item was postponed until the February meeting. STAFF REPORTS Treated Water Production Summary Dennis Bode reported that we ended the year with a treated was use of 31,594 ac-ft which was about 5% above what had been projected for an average year. That was indicative of the kind of year that we had. He said it was interesting to look at the weather data. "What is the total amount of acre feet that the City owns?" Tom Sanders asked. "If you look at the total supply and conversion factors that we use, it's close to 70,000 ac-ft. based on average supplies," Dennis replied. He added that the safe yield is much less than 70,000. COMMITTEE REPORTS Conservation and Public Education David Lauer reported that the Committee discussed three items: (1) bottling City water to sell to create a new revenue source; (2) education relating to Utilities rate increases; and (3) the new marketing person the Utilities recently hired. "That person is going to have some input into our public education program." David will discuss this further at the February meeting. OTHER BUSINESS Engineering Committee Work Plan John Morris said he had received a question regarding an item for the Engineering Committee's part of the work plan. Currently, there is an item that says "review water treatment." The Water Board Minutes January 25, 2001 Page 21 Committee was recently asked to review water additives. Does the Board consider that the same thing? The Board considered that the same. Molly Nortier announced that there will be a reception for two departing Board members at the February meeting. They are Dave Rau and George Reed. Dave reached the three -term limit and George Reed chose not to re -apply. Tom Sanders, Tom Brown, Bill Fischer and Joe Bergquist were re -appointed to additional terms. ADJOURNMENT The meeting was adjourned at 5:25 p.m. Water Board'Secretary