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HomeMy WebLinkAboutCOUNCIL - AGENDA ITEM - 06/06/2000 - FIRST READING OF ORDINANCE NO. 66, 2000, AMENDING AGENDA ITEM SUMMARY ITEM NUMBER: 16 FORT COLLINS CITY COUNCIL DATE: June 6, 2000 STAFF: Dennis Bode SUBJECT: First Reading of Ordinance No. 66, 2000, Amending Chapter 26 of the City Code Relating to Fees for Raw Water Requirements for the Water Utility. RECOMMENDATION: Staff and the Water Board recommend adoption of the Ordinance on First Reading. FINANCIAL IMPACT: It is expected that during the second half of 2000 the Utility will have approximately 100-acre feet of raw water requirements satisfied by developers through cash payments in-lieu-of water rights. Based on this, the increase from $3,500 to $4,500 per acre foot would increase the amount of cash received by about $100,000. Cash received goes into a water rights fund where it is kept in reserve for the development or purchase of additional water rights. i EXECUTIVE SUMMARY: This Ordinance will increase the cash rate charged developers for satisfaction of raw water requirements from $3,500 to $4,500 per acre foot. The cash rate, which is adjusted periodically to reflect the current price of raw water, is also the basis for a surcharge paid by nonresidential customers for water used in excess of their annual allotment. The proposed changes are to be effective August 1, 2000. BACKGROUND: When satisfying the City's raw water requirements, developers have the option of paying cash instead of turning over water rights. The cash rate, in-lieu-of water rights, is periodically adjusted to reflect the market price of water rights in this area. The last adjustment in the City's cash in-lieu-of rate was in January 2000 when it was adjusted from $2,700 to $3,500 per acre foot. Since that time water prices have increased significantly causing a need to consider another increase in the City's cash in-lieu of price. The price of Colorado-Big Thompson (CBT) units normally sets the trend in water prices in this area, since there is enough market activity to establish the going price. During the last couple of years, CBT prices have increased quite dramatically. In January 1998 the price was approximately $2,800 per unit (each unit delivers from .5 to 1.0 acre feet per year). In January DATE: June 6, 2000 1 2 ITEM NUMBER: 1 2000 it was approximately $8,000 per unit. Recent sales have been reported from about $12,000 to $15,000 per unit. The rapid increase in price appears to be because of numerous CBT water purchases by many communities in the Northern Colorado Water Conservancy District. Many communities and water districts in this area have relied primarily or solely on CBT water so they have increased their cash in-lieu-of prices to keep up with CBT prices. With the large increase in prices during the last several months, the raw water costs for many area developers have increased dramatically. Many of the cities and water districts in this area presently have cash rates that exceed $10,000 per acre foot. The attached graph illustrates the changes in the price of CBT units,North Poudre Irrigation Company (NPIC) shares and the City's cash in-lieu-of rate. The City's cash rate needs to be set at a level that will enable the City to purchase or develop enough water to meet the water demands of new development. Local developers that build in the City of Fort Collins Water Utility service area can turn over shares in a number of local irrigation companies to satisfy raw water requirements. Because of this, it is appropriate to focus on the cost of acquiring local stocks or developing other local projects when adjusting the City's cash in-lieu-of rate. In recent months the City has received primarily cash and very little water stock. This is an indication that the price of local stocks is approaching or exceeding the present cash in-lieu-of rate of $3,500 per acre foot. Another consideration is the cost of developing independent water supply projects in the Poudre Basin. Although there is still considerable uncertainty regarding the cost and the yield of such projects, it is believed that the cost would exceed $4,000 per acre foot of firm yield. Taking all the above factors into consideration, the staff believes that the cash rate should be raised from $3,500 to $4,500 per acre foot. A new typical single-family lot of 8,000 square feet in the Utility service area has a raw water requirement of.77 acre feet. If a developer chooses to pay cash instead of turning in water rights to satisfy the raw water requirements, the cost for such a lot would increase from about $2,695 to $3,465. The proposed increase in the cash rate would go into effect for all permits issued on or after August 1, 2000. The City Code provides that nonresidential customers pay a surcharge on water used in excess of their annual allotment. As this charge is based on the in-lieu-of cash rate, it also needs to be increased from $1.65 to $2.12 per one thousand gallons. The proposed increase in the surcharge would go into effect for all billings issued on or after August 1, 2000. The Water Board discussed this item at its April 27, 2000 meeting and recommended that the cash in-lieu-of rate be increased from $3,500 to $4,500 per acre foot and the surcharge be increased from $1.65 to $2.12 per thousand gallons. ORDINANCE NO. 66, 2000 OF THE COUNCIL OF THE CITY OF FORT COLLINS AMENDING CHAPTER 26 OF THE CODE OF THE CITY OF FORT COLLINS RELATING TO FEES FOR RAW WATER REQUIREMENTS FOR THE WATER UTILITY WHEREAS, in order to satisfy the City's raw water requirements, developers have the option of paying a cash fee to satisfy those requirements or to provide the City with equivalent water rights; and WHEREAS, this cash fee, paid in-lieu-of water rights, is periodically adjusted to reflect the market price of water rights; and WHEREAS, the last adjustment in this fee was in January of 2000, when it was adjusted from $2,700 to $3,500 per acre foot; and WHEREAS, the City Code also provides that non-residential customers pay a surcharge on water use in excess of their annual allotment, which charge is based upon this cash fee; and WHEREAS, since the fee is increasing, the surcharge for non-residential customers must also be increased; and WHEREAS, both of these increases are required due to the recent rapid increase in water prices for Colorado-Big Thompson units of water, which units were selling for approximately $8,000 per unit in January 2000 but in more recent sales have been sold for as much as $15,000 per unit. NOW THEREFORE BE IT ORDAINED BY THE COUNCIL OF THE CITY OF FORT COLLINS that subparagraphs (c)(1) and (c)(2) of Section 26-129 of the Code of the City of Fort Collins be amended to read as follows: (c) The fees and requirements for raw water shall be as follows: (1) To satisfy raw water requirements with in-lieu cash payments, the rate per acre-foot of RWR is . forty-five hundred;dollars($4,500). (2) The surcharge for water used in excess of applicable annual.allotment shall be two dollars and twelve cents ($2.12)per one thousand(1,000) gallons. Section 2. That the amendments recited herein shall become effective for all building permits issued by the City of Fort Collins and for all billings rendered by the Fort Collins Water Utility on or after August 1, 2000. Introduced, considered favorably on first reading, and ordered published this 6th day of June, A.D. 2000,and to be presented for final passage on the 20th day of June, A.D. 2000. Mayor ATTEST: City Clerk Passed and adopted on final reading this 20th day of June,A.D. 2000. Mayor ATTEST: City Clerk City of Fort Collins Cash Rate In-Lieu-Of Water Rights and Prices of CBT and NPIC Water $15,000 $14,000 Note: The Colorado-Big Thompson Project $13,000 (CBT) and North Poudre Irrigation ---- Company (NPIC) prices are based on City $12,000 Conversion Factors of 1.0 and 5.00 Ac- FUShare, respectively. $11,000 $10,000 $9,000 • LL $8,000 -- - - - w $7,000 -- - - — — $6,000 - -- $5,000 Cash In-Lieu-Of Rate -*-Colorado-Big Thompson Price $4,000 North Poudre Irrigation Co. Price $3,000 Ar $2,000 glow $1,000 $0 C e Co O N V' w CO O N < (O 00 O N r ao aD O O aD O O O O O O O C C C C C C C G C C C C C C C (0 f0 l0 (0 CO (a (o (o (o (o to Cu (o (0 (0 . MonthNear RW RPrim2000aChartCBTNP(3) 05/17/2000 Water Board Minutes April 27, 2000 Page 4 EXCERPT FROM WATER BOARD MINUTES April 27, 2000 PROPOSED CHANGE TO CASH-IN-LIEU-OF WATER RIGHTS According to the background information on the agenda item summary, developers have the option of paying cash instead of turning over water rights when satisfying the City's raw water requirements. The cash rate, in-lieu-of water rights, is periodically adjusted to reflect the market price of water rights in this area. The last adjustment in the City's in-lieu-of rate was in January 2000 when it was adjusted from $2,700 to $3,500 per acre-foot. Since that time, water prices have increased significantly causing a need to consider another increase in the City's cash in-lieu of price. Dennis Bode said the Water Supply Committee met recently and discussed this situation. He explained that since the adjustment of the in-lieu-of rate in January, staff has begun to watch the local stocks more carefully simply because that is the source of supply that we see for the future. On the other hand,they also realize that the price of CBT water certainly affects the price of the local water. We have seen the CBT price go from about$2,800 2 years ago to around $8,000 at the beginning of this year, and in recent weeks it has been $14,000-15,000 per unit. That pressure has caused a number of things to happen, including some pressure on the local stocks. Also, many of the other entities in the surrounding communities have increased their cash-in-lieu-of prices; many of them are in the range of$10,000, up to Loveland's at $15,000 an ac-ft. Many of those who have changed their prices have done so because they depend primarily on CBT water. "I'm not sure that's the case with Loveland," he said, "but a lot of the water districts and some of the smaller towns have depended primarily on CBT water." The City of Fort Collins has tried to focus more on the local supplies and has tried to gage the market of those supplies. In recent months, staff has seen more cash turned in instead of water stock, and heard of offers being made that are somewhat above our cash-in-lieu-of rate of $3,500. "That's a primary indicator for us that the price of the local stocks is now exceeding our cash-in-lieu-of rate,"Mr. Bode said. As a result, staff decided that the rate needs to be increased again. He said that it's always interesting to look at the graphic of CBT prices and the North Poudre shares in relation to our cash-in-lieu-orate. "It's a rather dramatic picture," he remarked. He then asked for questions and comments from the Board. Tom Sanders asked how Loveland's $15,000 cash-in-lieu-of rate is going to affect Fort Collins. Mr. Bode said there wasn't a direct link. The pressure comes primarily in people hearing that all the prices around us are considerably higher. That tends to pull everything up too.Fort Collins has a different set of irrigation companies that we accept shares in as compared to Loveland. In some ways it is an independent supply. ACTION: Motion Chair Sanders asked for a motion at this point. Bill Fischer moved that the Board accept staff recommendation that the cash-in-lieu-of water rights rate be raised from$3,500 per acre-foot to Water Board Minutes April 27, 2000 Page 5 $4,500, and the raw water surcharge be changed from $1.65 to $2.12 per thousand gallons to be effective July 1, 2000. Robert Ward seconded the motion. Dr. Sanders asked for discussion on the motion. George Reed referred to the third paragraph of the summary that said, "Another consideration is the cost of developing independent water supply projects in the Poudre Basin. Although there is still considerable uncertainty regarding the cost and the yield of such projects, it is believed that the cost would exceed $4,000 per acre foot of firm yield" "What did you mean by development there?" he asked. "This is looking at some of the projects that are out there, such as Halligan Reservoir, the new Seamans or Northern's South Platte Water Conservation Project,"Mr. Bode answered, He added that those numbers are fairly uncertain because not much work has been done on any of those projects that have been discussed. "It sounds, the way you stated it, as though the $4,000 would almost be a minimum,"Mr. Reed continued. Mr. Bode said he hadn't looked at it in detail. "What would be the downside of raising rates like other cities have?" Mr. Reed asked. It seems to him that those developers who are lucky enough to develop property within the boundaries of the Fort Collins Water Utilities are getting a gift these days, as compared to developers who are developing in the Fort Collins-Loveland or ELCO, etc. area. "The basic downside is just the cost of housing in the area," Mr. Bode responded. "Are you saying we are subsidizing housing?" Mr. Reed asked. "No,"Mr. Bode replied. . Bill Fischer thinks that what staff has tried to do is to strike a balance between the potential price of CBT units and the Southside Ditch rights that we can get.Per acre-foot, of course the Southside Ditch rights go for much less than the CBT units. The CBT units have a much broader market; they can go from here to Broomfield and Fort Morgan now. "That's certainly the case," Mr. Bode responded. Mike Smith stated that if our goal is to get CBT water, we would raise the cash-in-lieu-of rate, but we don't get much CBT. "We don't want to artificially raise the price of local water by chasing CBT. Also, if our projects are in that $4,000 range, it is more appropriate to stay in that area."He said housing is an issue, because if you artificially raise the cost it impacts housing costs. "We don't want to drive the market," he stressed. Dr. Sanders asked if the rates in Loveland are $15,000 now. "As far as I know the rate is $15,000 as of March 15, 2000,"Mr. Bode said. "Why do we have to wait until July 1"7" Dr. Sanders wondered. "We want to provide enough time for notification," Mr. Smith replied. Mr. Reed said if we accept $4,500 for raw water and it costs us $4,000 to develop the Southside Ditch water, does that mean we are basically selling that for $500? Mr. Smith said if it costs us $4,000 to do the Halligan Project, and we are collecting $4,500, we make $500 on each transaction. "We are estimating the market to make sure we have the income." Mr. Fisher asked if Mr. Reed wanted to raise it to $4,500. Mr. Reed said his question was what is the downside of going to $15,000? "It sounds like going to $15,000 will artificially drive the . market in this area."He was not sure what that meant except that it has the potential that some Water Board Minutes April 27, 2000 Page 6 development projects wouldn't occur,because they would be too expensive. Dave Rau remarked that it isn't fair to charge $15,000 for something you can buy for$4,000. Tom Brown said if you can buy it for $4,000 then people would put up water and not cash-in- lieu-of. "You tend to drive the share price up too,"Mr. Rau added. "You don't know whether you are leading or following the market."He thinks, in reality, the City seems to lead the market with a lot of ditch companies. Mr. Brown's point was if we were setting it at$15,000, are you saying that nobody with Southside Ditch water would sell to a developer at under that price? "No, but you would drive the price up," Mr. Rau said. "There's still a market out there even if it's small,"Mr. Brown responded. "If someone can turn over water instead of cash, they should certainly do that," he added. By turning over cash they are in fact taking the cheapest option for them. If it's overwhelmingly cash that they are giving us, it suggests that our cash rate is low, Mr. Brown concluded. Mr. Bode said that, in recent months, we have seen the price of local stock approach the cash rate. Now there is some pressure to increase. He agreed that people look at the cash-in- lieu-of rate and set their prices to match just under that. David Lauer asked what would be a fair valuation. Mr. Rau likes staff's proposal because he thinks we want to keep the cash-in-lieu-of a little higher than the price of water, because what we really want is water. "It's a delicate balance, and I think we need to continue to monitor the amount of cash we receive versus water." Mr. Reed said we almost doubled the price and the result was almost no effect on the cash. Mr. Bode explained that, if you look at the long-term, you can see some relationship between the cash rate and the amount of cash we get. Mr. Smith commented that there is a lot of greed in the market. Mr. Reed thinks what we need is better agility. We are almost in the fifth month of the year and we just haven't moved fast enough. He would support staff all the way if we could speed up the cycle a little. Mr. Bode said if you try to adjust every few months, it creates some difficulties in the development community. It also causes some problems in the City's administration of the permit system. "I would not like to see it get to the point where we change every few months because of some of those issues," he stressed. "There are advantages to having more stability," he added. "That makes sense,"Mr. Brown said, "but if you look at the graph you feel a little silly charging only half of what North Poudre shares are going for. "I don't feel silly about doing it,"Mr. Smith contends, "because we can build a project for that cost. Why drive the market?" Bill Fischer wondered about a rolling cash-in-lieu-of rate which would not directly mirror the cost of CBT water but perhaps follow it so there would be a lag effect on the City's rate. He said Mr. Bode had told him in an earlier conversation that it would be more of a nightmare than it would be beneficial to the City. Water Board Minutes April 27, 2000 . Page 7 Mr. Rau said we shouldn't continue to support overpriced water. Mr. Lauer said his reason for opposing this is that we are driving an excessive valuation even higher. That bothers him because of the affordable housing issue. Mr. Smith related that, currently, one project is on hold because of the fees. He thinks the districts on the north and south should be dropping their rates within the next year. Dr. Sanders thought it might be interesting to consider taking all water and not cash or all cash and no water. If we only took cash, perhaps the value of the water stocks would drop a little, and if we only took water the stocks would go up. Mr. Bode said it is hard to predict. If you took only stock, he thinks it would depend on how many sources of stock you accepted. If you took only one stock, and there were not very many shares available, the price would go up. "If we only took water shares, we wouldn't be determining the market,would we?"Mr. Brown asked. "We wouldn't risk taking $4,500 and having the real price go up?"Mr. Fischer said there wouldn't be any risk on that point, but it might stimulate the cost of the shares of some Southside Ditches to go higher. Regarding the issue of fairness, Mr. Reed said the people who have invested in this water are the people who have owned this infrastructure and supported it. To give it away for less than the market value, and return it to customers or owners, it seems to him, is unfair. `By buying the share at a lower price, we aren't robbing them of any money," Dave Frick responded. "If you increase the income by selling it, some place along the line, that has to pay out by water rates or improved quality," Mr. Reed said. Mr. Rau contends that lower income property is greatly impacted. He added that the bottom line is that this isn't a for-profit operation. "But the rates are certainly driven by a balance sheet," Mr. Reed insisted. "Granted, if you want to subsidize affordable housing, that's fine, but if you are working for your constituency, you must consider fairness to them." "If you make it so expensive in the City, they are going to start building out more and there will be more transportation infrastructure to build," Mr. Frick pointed out. "Are you really subsidizing? There are a lot more factors you have to consider," he added. "If you drive people out of town, you are still going to need service people in town and they are driving in town, which means more air pollution, and more congestion," Mr. Rau persisted. Tom Brown maintains that the Board shouldn't be considering these issues at all in this decision. Fairness to low income housing and in other areas are relevant,but we can not be involved in that game. "We are collecting the money we need to have the water and the water supplies to provide the services that are needed, and that to me is the beginning and end of it," he asserted. In the past the Board has agreed repeatedly that we don't want to be subsidizing anybody. We need to set the price as close as possible to the real cost and leave it at that, and not be pulled into other elements that should be handled by other parts of the City. Mr. Frick asked, "Is our price so low that people are paying all cash and we aren't getting any water? We still want to be able to get some water." Tom Sanders suggested that the Board stay with the discussion as to whether the price is too low or too high. Water Board Minutes April 27, 2000 Page 8 Mike Smith said that the City probably won't be buying water because our major need is storage. "We need to collect enough cash at the right rate to build storage." "That's assuming that by the time we build the storage, our money will have earned enough interest to keep up with the rate of inflation," Mr. Brown noted. "Dennis Bode has been more than conservative on those costs,"Mr. Smith assured the Board. "If they change, we will return to the Board to request a revision of the rate," he concluded. ACTION: Call for the question and Vote Dr. Sanders called for the question. The motion was to recommend to City Council that the cash in-lieu-of water rights rate be changed from $3,500 to$4,500 per acre foot and raise the raw water surcharge from $1.65 to $2.12 per thousand gallons, effective on July 1, 2000. The motion passed 7-1. David Lauer voted against the motion because he would have been more comfortable with $4,000 or $4,250. "1 think we are buying into an extreme over-valuing of water,"he stated.