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HomeMy WebLinkAboutCOUNCIL - AGENDA ITEM - 11/05/2019 - ITEMS RELATING TO THE 2019 FEE UPDATEAgenda Item 8 Item # 8 Page 1 AGENDA ITEM SUMMARY November 5, 2019 City Council STAFF Jennifer Poznanovic, Project and Revenue Manager John Duval, Legal Eric Potyondy, Legal Cyril Vidergar, Legal SUBJECT Items Relating to the 2019 Fee Update. EXECUTIVE SUMMARY A. First Reading of Ordinance No. 130, 2019, Amending Chapter 7.5 of the Code of the City of Fort Collins to Implement the Phase III Increases for the Capital Expansion Fees and Increase for Inflation the Capital Expansion Fees and the Transportation Expansion Fee. B. First Reading of Ordinance No. 131, 2019, Amending Chapter 26 of the Code of the City of Fort Collins Regarding Calculation and Collection of Development Fees Imposed for the Construction of New or Modified Electric Service Connections. C. First Reading of Ordinance No. 132, 2019, Amending Chapter 26 of the Code of the City of Fort Collins to Revise Sewer Plant Investment Fees. D. First Reading of Ordinance No. 133, 2019, Amending Chapter 26 of the Code of the City of Fort Collins to Revise the Stormwater Plant Investment Fees. E. First Reading of Ordinance No. 134, 2019, Amending Chapter 26 of the Code of the City of Fort Collins to Revise Water Plant Investment Fees. F. First Reading of Ordinance No. 135, 2019, Amending Chapter 26 of the Code of the City of Fort Collins to Revise the Water Supply Requirements Fee. The purpose of this item is to review fee updates associated with Electric Capacity Fees, Water Supply Requirement Fees, Wet Utility Plant Investment Fees (PIFs) and Step III of the 2017 Capital Expansion Fees (CEFs). Fee updates have been reviewed by Council Finance Committee twice, and at the November 8th Council Work Session Council was fully supportive of brining fees forward for Council adoption. Staff met with nine organizations across the City in the summer of 2019 and overall organizations were supportive of the approach and cadence. Coordination of Council approved fees began in 2016 to provide a more holistic view of the total cost impact. Previously, fee updates were presented to Council on an individual basis. After the 2019 fee update, fee phasing will be complete with regular two and four-year cadence updates beginning in 2021. 2019 fee updates include: Electric Capacity Fees, Water Supply Requirement Fees, Wet (Water, Wastewater and Stormwater) Utility Plant Investment Fees and Step III of the 2017 Capital Expansion Fees. Agenda Item 8 Item # 8 Page 2 Staff proposes the following fee changes: • Wet Utility PIFs as proposed • Electric Capacity Fees as proposed • Water Supply Requirement Fee as proposed • 100% of proposed 2017 Capital Expansion Fees (Step III) • Transportation Capital Expansion Fees (inflation only) Development Review/Building Fees were initially planned to be part of the 2019 update but have been decoupled and will come forward once finalized. STAFF RECOMMENDATION Staff recommends adoption of the Ordinances on First Reading. BACKGROUND / DISCUSSION Since the fall of October 2016, staff has worked to coordinate the process for updating all new development related fees that require Council approval. This resulted in the completion of two studies, the Capital Expansion Fee Study dated August 2016 (CEF Study) for the neighborhood park, community park, fire, police and general government capital expansion fees (CEFs) and the Transportation Capital Expansion Fee Study dated April 2017 (TCEF Study) for the transportation capital expansion fee (TCEF). Development related fees that are approved by Council are CEFs, the TCEF, five Utility Fees and Building Development Fees. Previously, fee updates were presented to Council on an individual basis. However, it was determined that updates should occur on a regular two and four-year cadence and fees updates should occur together each year to provide a more holistic view of the impact of any fee increases. Fee coordination includes a detailed fee study analysis for CEFs, the TCEFs and Development Review/Building Fees every four years. This requires an outside consultant through a request for proposal (RFP) process where data is provided by City staff. Findings by the consultant are also verified by City staff. For Utility Fees, a detailed fee study is planned every two years. These are internal updates by City staff with periodic consultant verification. In the future, fee study analysis will be targeted in the odd year before Budgeting for Outcomes (BFO). In years without an update, an inflation adjustment occurs. Agenda Item 8 Item # 8 Page 3 Below is the current fee timeline: Phase I of the fee updates included CEFs, TCEFs, Electric Capacity Fees, and Raw Water/CIL and were adopted in 2017. Phase II included Wet Utility PIFs and Step II of CEFs and TCEFs, which were approved in 2018. Development review and building permit fees were originally included in Phase II but were decoupled from the 2018 update. In Phase I (2017), the CEFs were increased to 75% of the amounts recommended in the CEF Study and the TCEF was increased to 80% of the amounts recommended in the TCEF Study. In Phase II (2018), the CEFs were increased to 90% of the amounts recommended in the CEF Study and the TCEF was increased to 100% of the amounts recommended in the TCEF Study. This Ordinance implements Phase III by increasing the CEFs to 100% of the amounts recommended in the CEF Study. Due to the concern in the development and building community around fee changes, Council asked for a fee working group to be created to foster a better understanding of fees prior to discussing further fee updates. In August of 2017, the Fee Working Group commenced comprised of a balanced group of stakeholders – citizens, business-oriented individuals, City staff and a Council liaison. The Fee Working Group met 14 times and was overall supportive of the fee coordination process and proposed fee updates. The 2019 phase III update includes Electric Capacity Fees, Water Supply Requirement Fees, Wet Utility Plant Investment Fees and Step III of the 2017 Capital Expansion Fees. After the 2019 fee update, fee phasing will be complete with regular two and four-year cadence updates beginning in 2021. Development Review/Building Fees were initially planned to be part of the 2019 update but have been decoupled and will come forward once finalized. The 2019 Fee Working Group is focused on Development Review/Building Fees only and met four times as of mid-September. The 2019 Fee Working Group consists of a balanced group of stakeholders – citizens, business-oriented individuals and City staff. 2019 Utility Fee Updates The proposed changes to Utility Fees for a single-family, residential home include a 1.7% increase to the Electric Capacity Fee (ECF) and increases to the three Wet Utility Fees ranging between 1.5% and 6.7%. The Water Plant Investment Fee (PIF) is proposed to increase 6.7%, the Wastewater PIF is proposed to increase 1.5% and the Stormwater PIF is proposed to increase 3.3% from current fee levels. The chart below summarizes the proposed Utility Fees for a single-family home, assuming an 8,600 square feet lot and 4 bedrooms: Agenda Item 8 Item # 8 Page 4 It should be noted that the cost of water and water storage is increasing at a rate well above other development costs. At the time the City began the community outreach for the 2020 Development Fees the best estimate we had was the previous estimate of $74M. Since that time a more comprehensive estimate which also accounts for potential mitigation costs which may or may not be realized has been developed. The City did not feel that it was fair to adjust the Water Supply Requirement for 2020 after conducting the outreach. The City will update the costs as more information becomes available and mitigation requirements are refined and update the Water Supply Requirement fee on a 2 year cycle with the next update coming in 2022. 2019 Capital Expansion Fee Updates The chart below shows the current and proposed fee updates for CEFs: Step III - Full fees proposed in 2017 with inflation Land Use Type Unit N'hood Park Comm. Park Fire Police Gen. Gov't Step III Total w Inflation % Increase w Inflation TCEF Total w Inflation Total % Increase w Inflation Residential, up to 700 sq. ft. Dwelling $1,855 $2,619 $454 $254 $619 $5,801 12.6% $2,336 8.9% Residential, 701-1,200 sq. ft. Dwelling $2,483 $3,506 $614 $344 $834 $7,782 12.6% $4,338 8.0% Residential, 1,201-1,700 sq. ft. Dwelling $2,712 $3,828 $668 $374 $911 $8,493 12.6% $5,632 7.5% Residential, 1,701-2,200 sq. ft. Dwelling $2,740 $3,868 $679 $379 $925 $8,591 12.6% $6,586 7.1% Residential, over 2,200 sq. ft. Dwelling $3,053 $4,312 $756 $423 $1,029 $9,573 12.6% $7,059 7.2% Commercial 1,000 sq. ft. 0 0 $572 $320 $1,564 $2,456 12.6% $8,594 3.1% Office and Other Services 0 0 $572 $320 $1,564 $2,456 12.6% $6,331 3.7% Industrial/Warehouse 1,000 sq. ft. 0 0 $134 $74 $369 $577 12.6% $2,043 3.1% Step III fees are a 12.6 % increase from current fee levels (Step II). CEF fee increases are 100% of full fee levels recommended in 2017. The CPI-U index for Denver-Aurora-Lakewood is used for CEF inflation. The Engineering News Record for TCEFs. Comparison Charts Fort Collins proposed fees are in the upper-middle of the pack: Agenda Item 8 Item # 8 Page 5 The following chart shows neighboring cities across water districts with and without raw water. Fort Collins fees are in line with neighboring cities: Fort Collins fees and the cost of code is leveling as a percentage of median new home sales price: Agenda Item 8 Item # 8 Page 6 Below is the 2019 fee roadmap: May June/July August October November 1/1/2020 Capital Expansion Fees CFC Outreach CFC Council Ordinance Effective Transportation CEFs Electric Capacity Fees CFC Outreach CFC Council Ordinance Effective Water Supply Requirement CFC Outreach CFC Council Ordinance Effective Wet Utility Fees CFC Outreach CFC Council Ordinance Effective Building Development Fees Working Group Working Group CITY FINANCIAL IMPACTS 2019 fee updates were discussed with Council Finance Committee in May and August of 2019. Fee updates will result in an increase to fee payers. BOARD / COMMISSION RECOMMENDATION 2019 fee updates were discussed with Council Finance Committee in May and August of 2019. Council Finance Committee recommended bringing the topic forward at the October 8th Council Work Session. From the Work Session, Council recommended ordinance readings in November 2019 as next steps. PUBLIC OUTREACH In an effort towards better communication, outreach and notification of impact fee changes, staff met with nine organizations across the City in the summer of 2019. Agenda Item 8 Item # 8 Page 7 Overall, organizations were supportive of the approach and cadence. There was acknowledgement that regular fee updates are necessary. Staff also heard: • Supportive of 2018 fee group recommendations • Progressive fees/if where possible • Investigate revenue alternatives to support parks refresh & maintenance • Explore stronger support for affordable housing • Concerns about attainable housing - it may be less desirable to live here • Policy questions - development standards going forward, alignment on total cost including operations and maintenance Additional communications to existing non-residential customers impacted by excess water use surcharges, as well as customer feedback, is included in the Customer Communication Excess Water Surcharges attachment. ATTACHMENTS 1. 2019 Fee Updates Council Work Session updated 2019-10-08 (PPTX) 2. Approved CFC Minutes 031819 (PDF) 3. Approved CFC Minutes 052019 (PDF) 4. Draft CFC Minutes 081919 (DOCX) 5. EAC Capital Expansion Fees Memo Final (PDF) 6. Work Session Memo on 2019 Fee Updates 2019-10-11 (PDF) 7. Customer Communication Excess Water Surcharges(PDF) 1 2019 Fee Update October 8, 2019 Council Work Session ATTACHMENT 1 Agenda 2 • Fee Scope, Timeline & Background • Proposed 2019 Fee Updates – Effective in 2020 • Comparison Charts • Community Outreach Feedback • Council Direction ATTACHMENT 1 Why Do We Have Impact Fees 3 Capital Expansion Fees • New development pays a proportionate share of infrastructure costs to “buy-in” to the level of service • Fee revenue used to build new service capacity • In place since 1996 Development Review Fees • Fees are intended to recoup the cost to the City for ensuring compliance with: • Planning, zoning and architectural/design standards • Adopted master plans • Building codes / resident safety Utility Plant Investment Fees • Provides a mechanism for new development to reimburse existing utility customers for existing infrastructure • Fee revenue used to build additional infrastructure The concept of growth paying for the impact of growth is a policy decision that City Council made and continues to support Fee Revenue Used to Add Infrastructure Needed Because of Growth ATTACHMENT 1 Fee Coordination 4 Objective: • Review fee updates together to provide a holistic view of the total cost impact • Bring impact fees forward per a defined cadence….. 2 - 4 years Type of Fee Fee Name Capital Expansion Neighborhood Park Capital Expansion Community Park Capital Expansion Fire Capital Expansion Police Capital Expansion General Government Capital Expansion Transportation Utility Water Supply Requirement Utility Electric Capacity Utility Sewer Plant Investment Utility Stormwater Plant Investment Utility Water Plant Investment Building Development Development Review, Building Permit & Engineering Fees ATTACHMENT 1 Fee Timeline 5 Detailed fee studies: • 4 years for CEF, TCEFs & Development fees • 2 years for Utility fees In years without updates, an annual inflation adjustment occurs Phase 1 Phase 2 Phase 3 2016 2017 2018 2019 2020 2021 Capital Expansion Fees Update Step II Step III Update Transportation CEFs Update Step II Update Electric Capacity Fees Update Update Update Water Supply Requirement Update Update Update Wet Utility Fees Update Update Update Building Development Fees Update Update Fee Working Group Active Active Active ATTACHMENT 1 Fee Overview: Methodologies Different methodologies used across fee categories: • Level of Service or Buy-in: Fees are set by assessing City’s capitalized assets or “level of service” and who’s using the assets. Development “buys in” to that level of service • Plan-based: Fees are set based on a capital improvement plan and development pays a portion of their impact on that plan • Hybrid: fees assessed using aspects of plan and level of service • Cost Recovery: fees are assessed based on recovering all or a portion of the cost of administering a particular program 6 ATTACHMENT 1 Overview of Fees 7 Fee Methodology Calculation Capital Expansion (CEFs) Level of Service Asset Value/ Who’s Using Transportation Capital Expansion (TCEFs) Plan-based Capital Improvement Plan & Vehicle Miles Travelled, Type of Land Use Utility Plant Investment: Electric PIFs, Stormwater Level of Service Asset Value/ Who’s Using Raw Water/ Cash-in-Lieu Hybrid (recommended) Future water storage + Value of current assets Utility Plant Investment: Water, Wastewater Hybrid Capital Improvement Plan & Current Asset Values Development Review Cost Recovery Cost Recovery at 100% per code ATTACHMENT 1 8 • Review of impact fees together is beneficial for understanding the full impact of fee updates • Overall, sound methodologies, calculations and inputs • The third-party fee audit revealed how the City spends and collects impact fees is sound • Impact fee amenities add to property value, but views differ as to what extent they impact housing costs Key Findings • Impact fees are complicated and difficult to communicate across the community • Park impact fees are the only category where impact fees pay for 100 percent of what is built • Need to identify new revenue sources for park refresh and maintenance in the future • If less than recommended is approved, alternative revenue sources will be needed Fee Group Findings Fee Group Validated Integrity in Fee Development and Expenditures ATTACHMENT 1 9 Utility Fees ATTACHMENT 1 10 Utility Fees Utility Fee Current Charge 2020 Charge $ Change % Change Electric Capacity Fee $1,537 $1,563 $ 26 1.7% Water PIF $ 3,826 $ 4,084 $ 258 6.7% Wastewater PIF $ 3,537 $ 3,590 $ 53 1.5% Stormwater PIF $ 1,548 $ 1,600 $ 52 3.3% Water Supply Requirement* $11,160 $13,838 $ 2,678 24.0% • Assumes residential, single-family home with an 8,600 square feet lot and 4 bedrooms *Charges for going over annual water allotment are tied to increase in Water Supply Requirement ATTACHMENT 1 11 Water PIFs Customer Class Criteria Current Charge 2020 Charge $ Change % Change Single Family 8,600 sq ft 3,826 4,084 $ 258 6.7% Duplex & Multi‐family 3,435 sq ft 1,423 1,546 $ 123 8.6% Commercial Meter Size 3/4" by tap size 7,930 8,790 $ 860 10.8% 1" by tap size 20,960 23,060 $ 2,100 10.0% 1 1/2" by tap size 43,510 45,610 $ 2,100 4.8% 2" by tap size 72,450 78,820 $ 6,370 8.8% WATER Plant Investment Fees ATTACHMENT 1 12 Wastewater PIFs 2018 2020 Change in Proposed % Customer Class Volume Volume Volume PIF Change GPD GPD GPD $ Single family residential 230 229 -0.4% 3,590 1.5% Duplex and Multi-family 170 165 -2.9% 2,590 0.1% Commercial Meter Size - inches 3/4 490 492 0.4% 7,710 2.6% 1 1,080 1,096 1.5% 17,190 3.8% 1.5 2,070 2,063 -0.3% 32,350 2.0% 2 4,300 4,281 -0.4% 67,120 2.0% Wastewater Plant Investment Fees ATTACHMENT 1 13 Stormwater PIFs Rate Class 2019 2020 $ Change % Change Gross Area Developed (sq ft) 8,600 8,600 Common Area Allocation (sq ft) 6,156 6,156 Base Rate (per acre*) $9,142 $9,447 Runoff Coefficient 0.5 0.5 Total Fee $1,548 $1,600 $52 3.3% Gross Area Developed (sq ft) 43,560 43,560 Base Rate (per acre*) $9,142 $9,447 Runoff Coefficient 0.8 0.8 Total Fee $7,314 $7,558 $244 3.3% Commercial Stormwater Plant Investment Fee Residential ATTACHMENT 1 14 Capital Expansion Fees Step III ATTACHMENT 1 Capital Expansion Fees Step III 15 • Step III fees are an 12.6% increase from current fee levels (Step II) • CEF fee increases are 100% of full fee levels recommended in 2017 • Inflation: CPI-U index for Denver-Aurora-Lakewood, Engineering News Record for TCEFs Step III - Full fees proposed in 2017 with inflation Land Use Type Unit N'hood Park Comm. Park Fire Police Gen. Gov't Step III Total w Inflation % Increase w Inflation TCEF Total w Inflation Total % Increase w Inflation Residential, up to 700 sq. ft. Dwelling $1,855 $2,619 $454 $254 $619 $5,801 12.6% $2,336 8.9% Residential, 701-1,200 sq. ft. Dwelling $2,483 $3,506 $614 $344 $834 $7,782 12.6% $4,338 8.0% Residential, 1,201-1,700 sq. ft. Dwelling $2,712 $3,828 $668 $374 $911 $8,493 12.6% $5,632 7.5% Residential, 1,701-2,200 sq. ft. Dwelling $2,740 $3,868 $679 $379 $925 $8,591 12.6% $6,586 7.1% Residential, over 2,200 sq. ft. Dwelling $3,053 $4,312 $756 $423 $1,029 $9,573 12.6% $7,059 7.2% Commercial 1,000 sq. ft. 0 0 $572 $320 $1,564 $2,456 12.6% $8,594 3.1% Office and Other Services 0 0 $572 $320 $1,564 $2,456 12.6% $6,331 3.7% Industrial/Warehouse 1,000 sq. ft. 0 0 $134 $74 $369 $577 12.6% $2,043 3.1% ATTACHMENT 1 16 Fee Comparisons and Outreach ATTACHMENT 1 Fee Comparison: For Median New Home Sales Price $488K* 17 Fort Collins Proposed Fees in the Upper-Middle of the Pack ATTACHMENT 1 Neighboring Cities New Median Sales Comparison with Fees 18 Fort Collins Fees are Inline with Neighboring Cities ATTACHMENT 1 Fort Collins Fee Stack Median New Home Sales 19 Fort Collins Fees & Code Cost Impact is Leveling % of Median New Home Sales Price ATTACHMENT 1 Summer 2019 Outreach 20 Organization Affordable Housing Board Building Review Board Economic Advisory Commission Fort Collins Board of Realtors Local Legislative Affairs Committee Northern Colorado Homebuilder's Association Super Issues Forum Energy Board Water Board ATTACHMENT 1 2019 Outreach: What We Heard 21 Overall supportive of approach and cadence We also heard: • Acknowledgement that regular fee updates are necessary • Supportive of 2018 fee group recommendations • Progressive fees/if where possible • Investigate revenue alternatives to support parks refresh & maintenance • Explore stronger support for affordable housing • Concerns about attainable housing - it may be less desirable to live here • Policy questions - development standards going forward, alignment on total cost (including operations and maintenance) ATTACHMENT 1 2019 Roadmap 22 • All fee categories initially planed to update in 2019 except for Transportation CEFs • Phasing complete after 2019 with regular two and four-year cadence beginning in 2021 • Building Development Fees decoupled from the 2019 update May June/July August October November 1/1/2020 Capital Expansion Fees CFC Outreach CFC Council Ordinance Effective Transportation CEFs Electric Capacity Fees CFC Outreach CFC Council Ordinance Effective Water Supply Requirement CFC Outreach CFC Council Ordinance Effective Wet Utility Fees CFC Outreach CFC Council Ordinance Effective Building Development Fees Working Group Working Group ATTACHMENT 1 Direction Sought 23 Does Council support fee updates to come forward for consideration in November (effective January 1, 2020)? ATTACHMENT 1 Backup 24 ATTACHMENT 1 2017 Recap 25 Council directed stepped implementation for CEF & TCEF in 2017 Success Factors: • Bringing fees together was good for understanding the full impact of fees • Formed citizen/staff working group Lessons Learned: • Fee increase recommendations were significant, caused confusion in the community • Difficult to explain with different methodologies and qualitative aspect Fee Status as of October 2017 Next Steps CEFs • 75% of fees implemented • Phased in approach - three steps TCEFs • 80% of fees implemented • Phased in approach - two steps Electric Capacity • 100% of fees implemented • Every two years Raw Water • 100% of fees implemented • Every two years ATTACHMENT 1 2017 – Drivers of Fee Increases 26 Capital Expansion Fees (2017 proposed increase 71% to 79%): • Fee based on replacement cost of existing infrastructure • Cost of construction, land, water up significantly since last fee revision Transportation Capital Expansion Fees (2017 proposed changes -32% to 114%): • Cost of construction up since last fee revision • Current transportation plan & calculation shift Electric Capacity Fees (2017 changes approximately -50% to 40%): • Change in methodology from plan-based to “buy-in” Raw Water Fees (effective 1/1/2018): • New fee model - value of the existing water rights portfolio & growth related capital expenses Large Increase Created Significant Business Community Concern ATTACHMENT 1 2018 Recap 27 Fee Group overall supportive of the fee coordination process and proposed fee updates • Council asked for a fee working group to foster a better understanding of fees prior to further fee updates • Balanced group of stakeholders – citizens, business-oriented individuals, City staff and a Council liaison • Met 14 times Fee Status as of January 2019 Next Steps CEFs • 90% of fees implemented • Phased in approach - three steps TCEFs • 100% of fees implemented • Phased in approach - two steps complete Utility PIFs • 100% of fees implemented • Every two years ATTACHMENT 1 28 Recommendations 1. Better Communication/Outreach & Notice of Fee Changes 2. Repayment of the $130k Identified in the Impact Fee Audit 3. Progressive Fees if/where Possible 4. Explore Additional Revenue Sources for Parks Buildout 5. Investigate Revenue Alternatives to Support Parks Refresh & Maintenance 6. Explore Stronger Supports for Affordable Housing Fee Waivers Fee Group Recommendations Recommendations Reviewed with Council Finance in September…. Implemented as Appropriate Over Time ATTACHMENT 1 Finance Administration 215 N. Mason 2nd Floor PO Box 580 Fort Collins, CO 80522 970.221.6788 970.221.6782 - fax fcgov.com Finance Committee Meeting Minutes 03/18/19 10 am - noon CIC Room - City Hall Council Attendees: Mayor Wade Troxell, Ross Cunniff, Ken Summers, Gerry Horak Staff: Darin Atteberry, Kelly DiMartino, Jeff Mihelich, Mike Beckstead, Josh Birks, Rachel Rogers, Travis Storin, Jennifer Poznanovic, Teresa Roche, Jamie Heckman, Chris Martinez, Laurie Kadrich, Noelle Currell, Tom Leeson, Theresa Connor, Lance Smith, John Voss, Shar Gerber, Katie Ricketts, John Duval, Ginny Sawyer, Carolyn Koontz Others: Dale Adamy, R1ST.org Kevin Jones, Chamber of Commerce ______________________________________________________________________________ Meeting called to order at 10:09 am Approval of Minutes from the February 25th Council Finance Committee Meeting. Ross Cunniff moved for approval. Mayor Troxell seconded the motion. Minutes were approved unanimously. A. 2019 Fee Road Map Jennifer Poznanovic, Revenue Manager EXECUTIVE SUMMARY Coordination of Council approved fees began in 2016 to provide a more holistic view of the total cost impact. Previously, fee updates were presented to Council on an individual basis. After the 2019 fee update, fee phasing will be complete with regular two and four-year cadence updates beginning in 2021. 2019 fee updates include: Development Review fees, Electric Capacity fees, Water Supply Requirement fees, Wet Utility Plan Investment Fees and Step III of the 2017 Capital Expansion Fees. GENERAL DIRECTION SOUGHT AND SPECIFIC QUESTIONS TO BE ANSWERED 1. Does Council Finance Committee support the proposed 2019 roadmap for fee updates? BACKGROUND/DISCUSSION Since the fall of October 2016, staff has worked to coordinate the process for updating all new development related fees that require Council approval. Development related fees that are approved by Council are six Capital Expansion Fees, five Utility Fees and 45 Building Development Fees. ATTACHMENT 2 2 Previously, fee updates were presented to Council on an individual basis. However, it was determined that updates should occur on a regular two and four-year cadence and fees updates should occur together each year to provide a more holistic view of the impact of any fee increases. Impact fee coordination includes a detailed fee study analysis for Capital Expansion Fees (CEFs), Transportation Capital Expansion Fees (TCEFs) and Development Review Fees every four years. This requires an outside consultant through a request for proposal (RFP) process where data is provided by City staff. Findings by the consultant are also verified by City staff. For Utility Fees, a detailed fee study is planned every two years. These are internal updates by City staff with periodic consultant verification. In the future, impact fee study analysis will be targeted in the odd year before Budgeting for Outcomes (BFO). Below is the current fee timeline: Phase I of the fee updates included CEFs, TCEFs, Electric Capacity Fees, and Raw Water/CIL and were adopted in 2017. Phase II included Wet Utility PIFs and step II of CEFs and TCEFs, which were approved in 2018. Development review and building permit fees were originally included in Phase II but were de- coupled from the 2018 update. ATTACHMENT 2 3 Due to the concern in the development and building community around fee changes, Council asked for a fee working group to be created to foster a better understanding of fees prior to discussing further fee updates. In August of 2017, the Fee Working Group commenced comprised of a balanced group of stakeholders – citizens, business-oriented individuals, City staff and a Council liaison. The Fee Working Group met 14 times and was overall supportive of the fee coordination process and proposed fee updates. The 2019 phase III update includes Development Review fees, Electric Capacity fees, Water Supply Requirement fees, Wet Utility Plan Investment Fees and Step III of the 2017 Capital Expansion Fees. After the 2019 fee update, fee phasing will be complete with regular two and four-year cadence updates beginning in 2021. Below is the proposed 2019 fee roadmap: DISCUSSION /NEXT STEPS; We will be back to Council Finance in May for deep dive of Development Review and Capital Expansion fees – goal is the same – effective 1/1/20. Outreach targeted for May / June - that may slip out a month or so ACTION ITEM: Ken Summers; 45 Development Review fees. Is there a list? Cost recovery / cost drivers? Appraisal updates for all facilities Mike Beckstead; we will bring a list back in May and be very specific - which is why the outreach may slip out a month - today is more about cost methodology and during the next agenda topic - we are going to share how the methodology used to done and propose a new methodology – gets into exactly what you are asking regarding development fees. Mike Beckstead; each fee has some uniqueness in the methodology used to manage each fee - depends on the fee and the nexus of what the fee is for - this is what drives the inputs to calculating the fee Mayor Troxell; I think the development review and building permit fees were looked at as part of fee stack review. Mike Beckstead; that is correct - we are doing a deep dive – there is a consultant involved - his report came in last week – we are getting that type of guidance on how we might improve the usability and ease of the fees plus the integrity of the fee that we are charging in the first place March April May/June July August 1/1/2020 Capital Expansion Fees CFC Outrech CFC Council Effective Transportation CEFs Electric Capacity Fees CFC Outrech CFC Council Effective Water Supply Requirement CFC Outrech CFC Council Effective Wet Utility Fees CFC Outrech CFC Council Effective Development Review Fees CFC Outrech CFC Council Effective ATTACHMENT 2 4 Ross Cunniff; I do support the Fee Roadmap for 2019 with the understanding that we will be diving into development fees then capital expansion fees at the May Council Finance Meeting. Bigger picture was mentioned earlier in the deck – when we didn’t have a roadmap like this we went 10-15 years without an update so when the review finally took place there was an incredibly steep rate of change which was painful for everyone. Trying to avoid that with this more deliberate review schedule. Ken Summers; Fee Roadmap for 2019 is fine but I also look forward to the on-going discussions on how we structure fees, etc. Mayor Troxell; wet utility fees - wet is kind of a jargon - electric capacity fees is descriptive but utility is not necessarily conveying a lot of information - I’m guessing that includes our water, wastewater and stormwater together. What are they actually providing for? Mike Beckstead; they are the plant investment fees a developer would pay for the needed infrastructure- in those three utilities. The methodology for how those fees are calculated are consistent across all three so that is where we came up with the name but I understand and agree that we need a better name to describe what those fees are about. Mayor Troxell; Is it water capacity? Lance Smith; water fees - water supply requirement which is the actual raw water and then separate from that is the plant investment fee which covers the cost of buying into the system Wet Utility includes a water plant investment from treatment plant to tap Wastewater plan investment fee covers treatment from your drain to the river Stormwater covers the infrastructure needed to gather the water to get it to where it needs to go. Mayor Troxell; electric capacity suggests a lot of things to me - that you are actually providing capacity. I think we are providing a broad notion of capacity for the water to and from and water from above. Mike Beckstead; Maybe a Utility Water PIF might work better - we will work on labels and will come back with definition and clarity on what the fee is actually about. We will list them all out. Ross Cunniff; one important difference - it might be useful to split these out when we talk about them at the same time - Stormwater fees apply to the whole city of Fort Collins and others don’t. B. Development Review Fee Update Tom Leeson, Community Development & Neighborhood Services, Director Noelle Currell, Financial Planning and Analysis, Manager EXECUTIVE SUMMARY The City contracted with MGT Consulting Group (MGT) to conduct an in-depth analysis of the City’s development review and building permit fees and to evaluate whether these fees are set at appropriate levels, inclusive for all costs, and consistent with the City’s goals for percent of cost to recover, and how fees compare to other communities regionally. This update to the City’s Development Review Fees is part of the City’s coordinated fee update process that began in 2017. ATTACHMENT 2 5 Staff and MGT Consultants also evaluated the methodology for calculating the fees and are requesting feedback on changing the methodology for calculating building permit and plan check fees from using the valuation of a project to using the square footage of a project. The methodology for calculating the development review fees is remaining the same. GENERAL DIRECTION SOUGHT AND SPECIFIC QUESTIONS TO BE ANSWERED Is Council Finance supportive of methodology changes for building permit fee calculations? What cost recovery percentage should fees be based upon? BACKGROUND/DISCUSSION City Fee Review Schedule Phase I of the City’s coordinated fee update process included Capital Expansion Fees (CEF), Transportation CEF, Electric Capacity Fees, and Raw Water/CIL and were adopted in 2017. Phase II included Wet Utility PIFs, which were approved in 2018. Development review and building permit fees were originally included in Phase II but were de-coupled from that effort and will move forward with the Electric Capacity Fees this year and will then be evaluated again in 2021. The last comprehensive analysis of development review and building permit fees was conducted in 2008. For many years the City had a policy to recover 80% of fee-related services (with exceptions, i.e., over-the-counter permits), in 2011, staff conducted an internal study of the costs associated with building permit and plan review fees based on City Council direction to change the cost recovery model of collecting 80% of the costs to 100% of the costs (See Attachment 1 for 2011 Study). No changes to the fees, with the exception of annual CPI increases, have been made to the fee schedule since 2011. Purpose of Development and Building Permit Fee Study The City contracted with MGT Consulting Group (MGT) to conduct an in-depth analysis of the City’s development review and building permit fees and to evaluate whether these fees are set at appropriate levels, inclusive for all costs, consistent with the City’s goals for percent of cost to recover, and how fees compare to other communities regionally. Additionally, the consultants were tasked with evaluating if the method of calculating the fee is up-to-date and if there was a different, more efficient methodology. One of the issues raised by applicants during the City’s review of the development review process was the complexity of the current fee schedule and the difficulty of estimating fees. An additional goal of the study was to evaluate the methodology and fee schedule to look for ways to simplify and streamline. Development and Building Permit Fee Approval The City Manager is authorized to set fees based on the costs of providing development and building permit review services, pursuant to City Code Sec. 7.5-2. The Land Use Code (Sec. 2.2.3.D) establishes the cost recovery model for development and building permit fees: (1) Recovery of Costs. Development review fees are hereby established for the purpose of recovering the costs incurred by the City in processing, reviewing and recording applications pertaining to development ATTACHMENT 2 6 applications or activity within the municipal boundaries of the City, and issuing permits related thereto. The development review fees imposed pursuant to this Section shall be paid at the time of submittal of any development application, or at the time of issuance of the permit, as determined by the City Manager and established in the development review fee schedule. (2) Development Review Fee Schedule. The amount of the City's various development review fees shall be established by the City Manager, and shall be based on the actual expenses incurred by or on behalf of the City. The schedule of fees shall be reviewed annually and shall be adjusted, if necessary, by the City Manager on the basis of actual expenses incurred by the City to reflect the effects of inflation and other changes in costs. At the discretion of the City Manager, the schedule may be referred to the City Council for adoption by resolution or ordinance. Development Review Fees and Calculation Methodology The fees imposed on development review applications are intended to recover the costs associated with staff time to review and process development proposals, such as (For a complete list of current fees refer to Attachment 2): • Project Development Plans (PDP) • Major Amendments • Overall Development Plans (ODP) • Planned Unit Development (PUD) • Rezoning • Sign Permit • Variances Development review fees were last updated in 2008 and were not included in the 2011 internal fee study, which only updated the building permit and plan check fees. Development review fees are calculated by determining the time spent by each staff member on each development application type (this includes staff members involved with processing the application including City Planners, administrative staff, Building and Development Review Technicians, Engineers, etc.) to determine the costs to the City to process and review. The methodology for calculating these fees is remaining the same; however, the fee schedule is being simplified. Currently the fee schedule includes the application fee as well as the cost of sending out the public notice, which will now be rolled into the application fee. Building Permit and Plan Check Fees and Calculation Methodology The fees imposed on building permit applications are intended to recover the costs associated with staff time to review and process building permit applications. Building permit applications are categorized by building type, such as (For a complete list of current building permit types and fees refer to Attachment 3): • A (Assembly) • B (Business) • E (Educational) • R-1 • R-2 ATTACHMENT 2 7 In addition to the building type categories mentioned above, there are also “over-the-counter” (OTC) building permit applications for small projects that can be issued quickly with very limited review, such as: • Furnace replacement • Air Conditioner • Pool/spa • Commercial roof replacement Building permit fees are currently calculated based on the valuation, or construction costs, of the proposed project. The building permit fees are calculated from the 2008 IBC Building Safety Journal for commercial/industrial valuation minimums. The residential valuation minimums are also based on the 2008 IBC table, but have been slightly modified to accommodate for local conditions. The valuation method can be difficult to estimate in the early stages of a project because in many cases neither the applicant nor the staff has enough information to provide a valuation, which can lead to big differences in the estimate provided and the actual fee. Furthermore, staff feels there is only a loose correlation between the valuation of a project and the amount of time it takes to review, process the application, and inspect the property. While the valuation methodology is relatively common throughout the country, it is problematic for staff to administer and is difficult for the applicants to understand and estimate. It can be difficult to administer because staff must rely on the information provided by the applicant with respect to the valuation and in most cases the valuation provided is at the very minimum or slightly above, even though staff is aware that the valuation is most likely higher. This can lead to disagreements with respect to the building permit fee and frustration by the applicants. In researching best practices as part of this fee study, staff and the consultants found communities that are changing from using the valuation of a project to calculate the fees to utilizing the square footage of the project. The square footage of a project is not subject to disagreements as it is a definite quantity provided within the application; it is a known quantity in the early phases of a project, so it provides a stronger basis for calculating accurate fee estimates; and has a strong correlation to the amount of time it takes to review and process an application. For those reasons, staff is proposing to change the methodology for calculating building permit fees from the valuation method to utilizing square footage and has asked MGT consultants to calculate the updated fees utilizing this new methodology. It should be noted that the “over-the-counter” permits such as furnace replacement and new air conditioning units, are also currently calculated utilizing the valuation methodology. Since these permit types do not have a square footage associated with them, staff is proposing to charge a flat rate fee based on the average time to process these permit types. The review process for these permit types is relatively simple and there is very little deviation from one permit to the next, so a flat rate fee would be an accurate and efficient method. ATTACHMENT 2 8 Engineering Inspection Fees MGT Consultants were also asked to evaluate the City’s Engineering Inspection fees as part of this fee study. The Engineering Inspection fees are intended to recover the costs associated with staff time to field inspect the public infrastructure improvements associated with new developments. The Engineering Inspection fees include such fees as (For complete list of Engineering Inspection Fees, refer to Attachment 4): ATTACHMENT 2 9 • Sanitary Sewer Main • Water Main • Pedestrian Ramps • Concrete or asphalt • Sewer manhole Engineering inspection fees are calculated by determining the time spent for each inspection type and are based on the size or length of the infrastructure being inspected to determine the costs to the City. The methodology for calculating these fees is remaining the same. What the Fees are Intended to Cover Development Review and Building Permit fees are intended to cover staffing resources and all associated costs for providing the following services, including:  Plan review for development and building plan submittals  Plan review for minor amendments  Inspections – building, construction/engineering, zoning  Related customer/administrative services o Permit issuance o Fee collection o Licensing o Board Support – Building Review, Planning & Zoning, Zoning Board of Appeals o Records Management Staffing resources and associated costs for providing ancillary, but critical services, from Management Information Systems for the development, configuration and maintenance of our computer systems and technologies are also included. In 2008, it was determined to eliminate administrative costs and those associated with management staff above the level of the direct managers of those providing development-related functions/activities. The fees cover the follow costs/funds: • General Fund – All of Current Planning, Customer & Admin Services, Building Inspection, Plan Check and a portion of Advance Planning and Zoning. • Transportation Fund– All of Engineering Development Review and portions of Customer & Admin Services, Engineering Admin Support, Engineering Construction Inspection, Engineering Survey, and Traffic Engineering. • Data & Communications Fund - All of the Development Tracking System, direct support and portions of GIS Cost Recovery Policy As was indicated above, the City had a policy to recover 80% of the costs of development through the collection of fees for many years, and in 2011, staff conducted an internal study of the costs based on City Council direction to change the cost recovery model of collecting 80% of the costs to 100% of the costs. The 2011 internal fee study only evaluated building permit and plan check fees and did not include development review fees. Additionally, the 2011 study appears to have compared overall expenses to provide the review services and revenues generated by fees but did not conduct an in- ATTACHMENT 2 10 depth analysis of the actual cost per permit type. As a result, it did not provide a completely accurate analysis of the cost to provide the development review services. The MGT fee study evaluated every permit type offered and interviewed each staff member involved in the development and permitting review process. The costs are calculated using the hourly rate and time spent of staff providing the review, thus providing an accurate analysis of actual costs. It should be noted that neither the development review fees nor the building permit fee calculations include City wide overhead such as Financial Services, Human Resources or the City Attorney’s (CAO) staff. For example, the CAO staff spend a considerable amount of time on development review projects such as the drafting of all development agreements, public hearing support, land use code interpretations, and review of staff reports. Historic Development Review Expenses and Revenues The following table shows the City’s historic expenses and revenues: This graph demonstrates that during times when the economy is good, revenue outweighs expenses; when the economy is in poor health, expense outweighs revenue (this is the expected trend). • Notes on spikes/changes: o 2012:  Fees changed from 80% Cost Recovery to 100% Cost Recovery  Updated tables that are used for project valuation purposes (from 1982 UBC tables to 2008 BSJ tables)  Recession Recovery o 2014:  Major permits pulled – Mall & Woodward ATTACHMENT 2 11 Comparison of Peer Cities As part of the fee study, MGT provided a comparative survey of Building Permit and Plan Check fees as a baseline. The fees presented in the comparative study are for the existing City fees. The new fees will be added to the comparative survey once the data and direction on methodology has been finalized. The MGT project staff worked with City staff to create a list of example project fees to be compared with similar fees in select peer cities. The City of Fort Collins provided MGT with twenty receipts from actual work done by the City. The information contained in each receipt was then used to provide example projects to the comparative jurisdictions and to calculate fees where applicable. See Attachment 5 for the complete comparative survey. Next Steps and Public Outreach Based on the direction from Council Finance regarding the methodology of the building permit fees and the cost recovery, staff will refine and calibrate the data from MGT Consultants and propose a final fee schedule. The timeline for this project will parallel the timeline for the Electric Capacity Fees update process, with a Council work session in mid-summer and City Council adoption in the fall. A second Council Finance meeting could be scheduled for early summer as well if necessary. Staff will also engage in a robust public outreach process during the next six months, engaging with such groups as: • South Fort Collins Business Association • Super Issues Forum • Northern Colorado Homebuilder’s Association • Downtown Development Authority • North Fort Collins Business Association • Local Legislative Affairs Committee • Affordable Housing Board • Human Relations Board • Economic Advisory Commission • Board of Realtors • Building Review Board • Housing Catalyst ATTACHMENT 2 DISCUSSION /NEXT STEPS; Tom Leeson; Water heater flat fee example - easier to calculate and understand – there was an evaluation done on how long it takes to complete each type of permit / inspection and the flat fee rate is based on that. Mayor Troxell; Is there a different type flat fee for each permit type? Is that a long list of things? Tom Leeson; the list is included as an attachment to the AIS which includes 15-20 different types. Mayor Troxell; Is there a process flow? Was it looked at via Lean principle perspective? No missed hand off steps, etc. Tom Leeson; that is part of the calibration we need to look at - The question is could we be more efficient in our processes and are we spending too much time because our processes are inefficient? This is more related to the amount of time an individual employee spends reviewing an application type less pass off time. We are not recovering 100% as we don’t collect fees associated with time spent by CAO, and indirect cost drivers such as HR and admin, etc. Noelle Currell; interesting that a new furnace inspection is valuation based but the time spent by a building inspector is the same no matter type of furnace. For Broadband every place in city will be touched (potholing or boring) we made sure we captured and included those updates. We had to hire some additional engineering inspector staff to handle the additional volume for Broadband - we did hire an additional inspector and we have tentative plans to hire a second inspector to handle the volume. Engineering fees need to be set so we recover costs of inspectors. Mike Beckstead; I look at that chart and see a 15% increase in residential fees and a 50% increase in commercial fees is - the magnitude of the change is a bit concerning. This is very similar to what we did when we did the deep dive on capital expansion fees about 3 years ago - we looked at inputs and methodology - we are ending up with the same kind of results this time 0 if we want to hit 100% cost recovery there will be some fairly significant increase. Darin Atteberry; this is not nor is it intended to be a profit center for the City of Fort Collins. Mayor Troxell; Are any of the peer cities – 4 utility cities? Darin Atteberry; Front Range and national peer cities – most are full service cities - some with university presence - they have been scrubbed but they are not perfect - Front Range data set - we have our standard set of peers that Council has generally accepted - when it comes to fees the local front range peer data is always relevant. Ross Cunniff; our cost of living should be factored into that because that will affect the salaries and cost of staff time. Ken Summers; what is the value of looking at Fort Collins versus peer cities across the nation? Doesn’t mean anything to me relative to whether our fees are in alignment or not - more concerned and interest in the cities around us. ATTACHMENT 2 13 Darin Atteberry; Council has been interested in what is happening with our national peer cities - size wise - we were asked to include national peer cities as well - over the years we have tried to include both because it has been an ask of Council - never been a mandate or a driver – only for information Ross Cunniff; educational - if it shows - we are moving from the median to somewhere different so is that really the right direction? Noelle Currell; lots of work from staff - Shar was very involved in requesting copies of actual building permits. Mayor Troxell; Colorado Springs got away from stormwater and called it a rain tax -they got into issues federally etc – regarding how they handled their stormwater. I think they reinstituted it - sometimes there are large political factors that can skew things. Ross Cunniff; big picture driver of all of this is fairness and predictability is part of being fair. We have a set of services that need to be performed because of life safety, compliance with building code, in that framework who is paying for the cost of having inspectors - it doesn’t tell me if we are more or less fair. Ken Summers; Do we have any permits that are issued that do not require a follow up inspection? Tom Leeson; the bulk majority of our building permits do require an inspection - we have planning fees that eventually turn into building permits. Ken Summers; we were erecting a pretty substantial sign at a church in Lakewood which required a foundational base so we called the city to let them know that we were ready for them to come inspect – they said we don’t do that – if your sign falls over that is on you - we paid for a permit just to provide income to the city - we were following the specs from the sign company in preparation - I was shocked by the response. Tom Leeson; We may have permits that don’t require an inspection but we still have staff time involved to process applications – in almost every case zoning reviews the request so there would still be staff time involved in any permit we process. If no inspection is required, it was not factored into the fee. Mayor Troxell; Is there a purpose (purposeful purpose) for each of the fees and permits? (Improve safety, community or other intended purpose). Purposes should be clear. Mike Beckstead; when we come back in May we will bring fee level and clear purpose information. This is not a revenue generator - it is cost recovery. Noelle Currell; Historical Revenues / Expenses - several things have happened after 2011 – in 2018 we flipped and did not generate as much revenue as expense. Tom could speak to the number of conceptuals coming in. The 2014 spike was the Mall and the 2016 spike was Woodward. Larger projects take a lot of staff time such as Montava currently. We have been able to upgrade our permitting system and process - new more user friendly system for customers and staff and has added some great features. Mike Beckstead; when we talk about percentage of cost recovery - part of the direction we are looking for is - Is that by year or by building cycle / economic cycle - If we always had to match expenses to revenues – staff issue ATTACHMENT 2 14 based on revenues that come in - support staff we need to do these things - revenue might be a bit higher due to cycle. Much harder to estimate over the cycle. Gerry Horak; this slide indicates a surplus - anyone would ask ‘why are you going to charge more?’ ACTION ITEM: Ross Cunniff; two big spikes were specific projects - it would be interesting to try to filter them out - The concept of one cycle helping to subsidize the next cycle doesn’t sound fair to me. Someone who adds something to their house or builds a new business they are not ongoing customers in the way utility customers are. Utility customers - taking some of these rates and fees to build future capacity - there are future benefits. For a person who pays a one-time fee - they paid 50% more for cost recovery they will not get more value in the future as opposed to utility example. Fairness - we should try to figure out a way to filter out the Mall and Woodward - that would make some sense in trying to present this chart -the blue line and red line should be closer to each other - they would fluctuate due to economic cycle. Gerry Horak; 2014 Mall - the charges we gave to the mall were over what the cost of doing it. Do we change according to scale? How are we looking at scale of projects? Mike Beckstead; in that particular year that is true - this is where the over the cycle metric is key Tom Leeson; NGT study - we are trying to understand the true cost per application type. In order to process a project development plan – it will cost the city this amount because it will take this amount of staff hours - might have more or less revenue because of the number of applications you get but per application type you would have parity. ACTION ITEM: Ross Cunniff; I would like to see this chart - some of this might be related to valuations going up faster than costs. Gerry Horak; moving ahead if you collected over $5M more than it doesn’t sound like a valid argument Mike Beckstead; I agree with the optics - The charge would imply a surplus – that surplus was just part of the General Fund that was used for normal General Fund activity – this is not isolated revenue - we don’t have a fund just for development - Ross Cunniff; we didn’t intentionally use this as a revenue generator Mayor Troxell; as you begin to change your methodology more based on real costs – this is part of leading and lagging – when you are capturing revenue vs. when the time expended - there is some delta that way. Some staff availability time during slow times - the practice has been to contract and let go of contracts based on needs - providing flexibility within the expense side. Trying to dial it in closer so you are more in line with operational staff needed - what is needed to cover those costs. Tom Leeson; we will be coming back to Council Finance in July with more detail. We will be going through a full Fort Collins outreach process - will go through a very robust outreach process (boards, external stakeholders) Lined up for Council adoption toward the end of the year. ATTACHMENT 2 15 ACTION ITEM: Gerry Horak; we need to get a stakeholder’s committee together – the Council and community will end up focusing on dollars versus what the question really is; Is the methodology fair? What is the proper recovery? I would recommend that we direct the City Manager to form a stakeholder committee before we get too far down the road. Ross Cunniff; what are development review fees for? Are they fair / what is the recovery rate? Mayor Troxell; build that team into the outreach framework ACTION ITEM: Ross Cunniff; I would support that on consent - this is more than going to groups to explain it I have also been hearing that roofing projects over the last few years - their roof never got inspected – I would like some statistical valid survey of homeowner roofing projects asking are your satisfied with your level of service? The development industry is part of the stakeholders for this – actual consumers are living on the properties. Tom Leeson; we did get behind on the roof inspections because of the numbers of inspections required but we have caught up and are current but we can get this information. Mike Beckstead; I am hearing you are positive with the methodology but let’s vet it with team Ross Cunniff; what are they for? We have city attorney time and overhead time. Those are so indirect for the development fee that it is probably not fair to roll those in - those are completely in control of Council how we staff and budget those. Ken Summers; 100% cost recovery – we need to understand what that means - allocating funds like a cost center accounting sort of thing with departments that are funded already with General Fund monies, Gerry Horak; do folks report their time for that? Are we going to do that in the future? Tom Leeson; various departments have looked at that but we are not moving in that direction. Mike Beckstead; a project breakdown system doesn’t exist today and we don’t currently have a system in place Ross Cunniff; wondering with our new electronic review process - some of that could be automated - you are taking a lot less time or more - Gerry Horak; for the 21/ 22 budget - it would be nice to know the real numbers and be able to provide real data to Council. Record how much time people actually spend on projects - example of working on Montava. Ross Cunniff; one of the things you should discuss with the stakeholder group is your plans for assessing efficiency - feed that into the equation and the discussion. ATTACHMENT 2 16 C. URA Project Josh Birks, Director, Economic Sustainability Rachel Rogers, Sr. Specialist Economic Sustainability SUBJECT FOR DISCUSSION City’s Tax Increment Contribution to the Proposed College and Drake Urban Renewal Plan EXECUTIVE SUMMARY The purpose of this item is to review the proposed City property and sales tax increment contribution to the proposed College and Drake Urban Renewal Plan. GENERAL DIRECTION SOUGHT AND SPECIFIC QUESTIONS TO BE ANSWERED 1. Does the Committee have any questions about the proposed tax increment contribution by the City in support of the College and Drake Urban Renewal Plan? 2. What additional information does the Committee feel Council will need in order to review this proposal? BACKGROUND/DISCUSSION The City of Fort Collins (the “City”) is considering the adoption of a new Urban Renewal Plan, at the intersection of College Avenue and Drake Road, (the “Plan”) to direct the activities of the Fort Collins Urban Renewal Authority (the “Authority”), pursuant to the Colorado Urban Renewal Law, C.R.S. §31-25-101 et seq. The Plan enables the use of Tax Increment Financing (“TIF”) as a tool to stimulate and leverage both public and private sector development, including redevelopment, to help remedy adverse conditions and prevent the spread of further deterioration. The Plan effort originated in response to two proposals for private development in the area. While these two projects are anticipated to occur in the near term, additional development and redevelopment may occur incrementally over the life of the Plan. In 2014, the Larimer County Tax Increment Financing Study Group (the “TIF Study Group”) was formed of representatives from Larimer County, municipalities in the county currently using urban renewal (Fort Collins, Loveland, and Timnath), five other municipalities, and selected taxing districts and special districts. The TIF Study group:  Acknowledged the positive impact of TIF in providing needed financial support for redevelopment and economic development investments in the County; and  Convened because of concerns about requirements to provide services to the new development created by urban renewal supported by TIF. The TIF Study Group had three primary objectives: 1. Develop a method to qualify and quantify the fiscal and economic impacts and financial risks of TIF proposals; 2. Develop a way to evaluate the indirect impacts of TIF projects and corresponding financial effects on taxing entities; and 3. Establish a framework for formal agreements that balance the benefits and risks among participating entities in Larimer County. ATTACHMENT 2 17 To achieve objective three (3) above. The Plan Area Review Committee (the “PRC”) recommends that the Plan include a specific set of improvements to be funded in part or fully by TIF. This list of improvements would then be attached to any intergovernmental agreement (“IGA”) between the Authority and an impacted tax entity. The intent is to provide a clear list of the uses of TIF prior to adopting the plan. Once all improvements on the list are fully funded and constructed the collection of TIF would terminate with revenue reverting back to the appropriate entity. This would apply to all incremental property tax revenue and sales tax revenue. City Sales Tax Increment & Contribution: In 2015, the State Legislature significantly revised the Urban Renewal Law. Aside from adjusting the composition and size of the Board, the changes also required that the Authority negotiation an allocation of property and/or sales tax increment with each impacted entity. Authority staff have held several discussions with the various entities. However, little discussion has occurred with the City directly, which is technically a separate and impacted entity as well. Historically, the City has pledged 100 percent of the property tax increment into all projects. In addition, the City dedicated 100 percent of the sales tax increment associated with the 2.25 percent general fund rate. During discussions between the Authority and the impacted taxing entities a key concept continues to rise to the top of the discussions. That concept is one of equity between the impacted taxing entities. This is central to the County’s desire to include language about the City’s sales tax dedicated in the Intergovernmental Agreement between it and the Authority. As such, staff recognizes that the new landscape of Urban Renewal will require greater City participation than in the past. This participation will need to include sales tax increment as well. The current proposal includes:  50 percent of the sales tax increment from the 2.25 percent general fund rate net of the existing King Soopers sales will be allocated to the Authority;  The agreement would exclude any future increases to the general fund rate, explicitly referring to the current 2.25 percent general fund rate;  Furthermore, the total revenue generated from sales tax increment will be capped at $10,144,496 based on a 2 percent inflation factor, see Table 1 below.  Finally, the agreement between the City and the Authority will several provisions consistent with the other taxing entities: o TIF use will be limited to a list of public improvements within an attached exhibit with the ability to escalate the costs based on the Engineering News Record inflation rate; o The agreement will specify that it does not set precedent for future agreements; and o The agreement will require an annual report be generated updating the City on the progress of the plan. Table 1 Estimated City Sales Tax Increment ATTACHMENT 2 18 Total City sales tax increment is estimated to be $677,000 annually or $23.3 million over the plan area period. This represent approximately $13.3 million in time value adjusted dollars (assuming a 4.5 percent discount rate). The current proposal from the Authority pledges 50 percent of the net new increment or approximately $317,000 annually for a total of $10.1 million. This represents approximately $5.8 million in time value adjusted dollars to support the College and Drake Plan. The City will also receive Lodging Tax revenue, which is split between Visit Fort Collins and Fort Fund grant dollars. It is estimated that approximately $110,000 annually will be generated from the proposed hotel for a total of $3.9 million in total or $2.2 million in present value, as shown in Table 2. Table 2 Estimated City Lodging Tax Increment Other Entity Sales Tax Increment: In addition, other taxing entities including the State of Colorado and Larimer County will receive additional sales tax revenue from the project. Using the same assumptions regarding net new revenue the State will received approximately $560,000 annually for a total of $18.3 million over the 25-year period, as shown in Table 3. The County will receive approximately $155,000 annually split across the Base Tax and Mental Health Tax. City of Fort Collins General Fund (2.25%) Annual Growth Rate 2.00% 2021 TOTAL TOTAL General Fund $13,252,906 $676,654 $23,334,585 TOTAL City Pledged to Project (50% of King Soopers and Spradley Barr) $5,753,078 $316,716 $10,144,496 City of Fort Collins Dedicated Sales Taxes Annual Growth Rate 2.00% Present Value 2021 TOTAL Natural Areas Tax (0.25%) $980,052 $52,874 $1,729,113 Street Maintenance Tax (0.25%) $980,052 $52,874 $1,729,113 Capital - CCIP (0.25%) $980,052 $52,874 $1,729,113 KFCG (0.85%) $3,332,176 $179,771 $5,878,983 Total Other City Sales Tax $6,272,331 $338,393 $11,066,321 TOTAL CITY SALES TAXES $19,525,237 $1,015,047 $34,400,906 Present City of Fort Collins Lodging Tax (3%) Annual Growth Rate 2.00% Present Value 2021 TOTAL Hotel Site $2,226,648 $110,192 $3,939,769 ATTACHMENT 2 19 Table 3 Estimated Sales Tax Increment, Other Entities Policy Implications: On September 30, 2014, the Authority adopted Revised Policies Relating to Financial Management for the Urban Renewal Authority, that defined the way the Authority will reimburse developers using Tax Increment Financing (“TIF”). The current policy stipulates that the Authority should (see Attachment 3 for the full policy):  Reimburse developers over time rather than upfront;  Encourage limiting the contribution to a developer at no more than 50 percent of the anticipated TIF generated by that developer; and  Limit the TIF contribution to no more than 25 percent of a specific development’s cost. While this policy governs the use of TIF by the Authority, and thus has been adopted by that body. No policy exists guiding the City’s contribution of property or sales tax increment to a specific Urban Renewal Plan. This may be a policy that City Council should consider evaluating and adopting. DISCUSSION /NEXT STEPS; Josh Birks; key Dates; Per the email you each received, the April 16th Council Adoption has been delayed to some date in the future due to ongoing negotiations. I would like to move forward with the IGAs in the cooperation agreement in good faith - try to get those agreements done. College and Drake Project Increment Limitations All Other Sales Taxes Generated Annual Growth Rate 2.00% Present Value 2021 TOTAL All Parcels State of CO (2.9%) $10,408,544 $560,485 $18,364,826 Larimer County (0.80% total) $9,977,701 $154,616 $5,066,159 Base Tax (0.55%) $1,974,034 $106,299 $3,482,984 Mental Health Tax (0.25%) $897,288 $48,318 $1,583,175 ATTACHMENT 2 20 Policy Implications - city policy is the missing piece for the future Ross Cunniff; it looks like the sales tax increment is based in part on our revenues. Are they going to be there during this whole time frame? Josh Birks; they are not based on Spradley Barr’s current operation as auto dealer - we have been calling it the Spradley Barr parcel - but we will start referring to it as the project name which is Portico. Those are the revenues going toward the Portico project. The hotel generates both sales and lodging tax. Josh Birks; two things that have guided staff in making this proposal; 1) it is clear that the dedicated tax revenue should be left aside 2) we wanted to be mindful of not pledging sales tax that could be shifting from other parts of the community We took the existing King Soopers out - we used average of all stores to give us a more accurate picture of a traditional King Soopers in a highly functional location. Because King Soopers is not just a grocery store - we are including some of that potential new sales from soft goods / general merch - not food Ross Cunniff; are you taxing food sales to fund capital projects? Answer is no. I wouldn’t ask other entities to dedicate thing – I don’t want to dedicate on our own. I think we should have a city policy and that would help normalize this type of discussion. As you negotiate with the URA over our own increment contribution – you are going off of existing URA policy - it would be useful to have an explicit policy statement. ACTION ITEM: Gerry Horak; whatever ends of being done for the 2.25 - it should be codified to a specific date when each tax was passed – there are three of them. That way it is specific on when each tax changed becuase it could go ATTACHMENT 2 21 down also - makes it clear which taxes we are talking about – according to when tax was passed in 19xx and 20xx - says what it is - future council changes things - Josh Birks; clarifying – we will be more clear on the actual tax Gerry Horak; I am all for the policy and I don’t think this is very complicated. Mayor Troxell; does this have anything to do with how we backfill? Josh Birks; The school district has asked if there would be anyone in negotiations that would be willing to guarantee their backfill revenues if that should change at some point in the future - I told them I would ask the question in an open context. Mike Beckstead; I don’t anticipate any backfill obligations on the city’s part for the city’s TIF that goes into this. Ross Cunniff; I don’t think we should be guaranteeing another entity’s backfill. Gerry Horak; I think the URA may be headed to mediation. Josh Birks; any concerns with continuing to move forward with the cooperation agreement in parallel with the policy conversation despite the fact that actual plan adoption may be postponed for several months? Ross Cunniff; whoever we can get agreements with would be good. D. Compensation Report Review Jamie Heckman, Sr. Manager, Compensation Teresa Roche, Chief Human Resources Officer EXECUTIVE SUMMARY The purpose of this item is to present an overview of the City’s compensation philosophy and practices, and a summary of 2019 pay increases. GENERAL DIRECTION SOUGHT AND SPECIFIC QUESTIONS TO BE ANSWERED No specific direction is sought. This item is informational only. BACKGROUND/DISCUSSION Total compensation (salary + benefits) comprises approximately 25% of the City’s operating budget. Council approved a 3% budget pool for pay increases for the 2019-2020 budget. With Council approval of Offer 6.10 in the 2016 Budget Revisions and Offer 42.6 in the 2017-2018 Budget, the City launched a multi-year project to improve foundational classification and compensation systems to ensure the City is well positioned to attract, retain, engage, develop and reward a diverse and competitive workforce to meet the needs of the community now and in the future. ATTACHMENT 2 22 The information presented in this item includes compensation philosophy, an overview of the job architecture framework, market pricing and analysis methodology, establishment of the Pay Plan, and 2019 compensation increases. DISCUSSION /NEXT STEPS; Darin Atteberry; Thank you to Jamie and Teresa and the team that worked on this - our compensation philosophy and practices continue to improve. SA Directors now manage to their budget and they have guardrails to be accountable to. This is an important practice and a huge part of our budget. I am confident in how it is being implemented and how the SA Directors has responded to these changes in the last few years. Ross Cunniff; very helpful dialog - Do we track off cycle increases from year to year? Jamie Heckman; we have started to track this historically - we had 30-35 off cycle increases in 2017 and 35 in 2018. We expect this number to remain fairly constant. There is a strong business case for each instance. Mayor Troxell; this is really good work - consistent framework throughout E. Revenue Update Mike Beckstead, Chief Financial Officer Year to date Sales and Use Tax revenue and planned actions EXECUTIVE SUMMARY Year to date (YTD) sales tax revenue is slightly behind budget through February and use tax is above budget for a combined sales and use tax above budget. Sales tax is historically volatile in the first quarter. If sales tax growth were to remain at the YTD rate, the revenue shortfall would be about $1.3M with a $750K shortfall to the General Fund. Staff is monitoring revenue to budget and is working to develop a rubric/trigger for when action should be taken and a list of potential actions that could be taken depending on the magnitude of the shortfall. GENERAL DIRECTION SOUGHT AND SPECIFIC QUESTIONS TO BE ANSWERED Is CFC in agreement with the proposed monitoring of actual revenue to budget and the development actions referenced above? DISCUSSION /NEXT STEPS; Ross Cunniff; Do we have an understanding of what fraction of the use tax is construction vs other? Mike Beckstead; that information is part of the Sales Tax report – it shows business, construction, auto sales. Mike Beckstead; February is historically a volatile month in fact the whole 1Q is so it hard to react just to February. 1.7% conservative growth rate is we need to hit our budget numbers We have a Monthly Financial Management Report – a slide with an example of data from the report. ATTACHMENT 2 23 Actions In Motion: Committee to meet - three meetings are scheduled; Monitor underspend - identify opportunities - develop a rubric of trigger points Will watch closely. By mid-April we should have a good read on the entire first quarter revenue across the city and will be in a much better position to discuss trigger points and actions. ACTION ITEM: Ross Cunniff; what is the right size for that contingency over time? sustain level - analysis reserve / flexible - could be used in event that it is needed. Might be a good idea to include that in future budget cycles. Mike Beckstead; we never had a contingency in place until the 17/18 budget cycle and we used a big piece of it. It might be a good idea to have a revenue contingency fund included and to evaluate what is the right amount to address possible fluctuations. ACTION ITEM: Ken Summer: It would be helpful to have a brief summary update economic report - only a few pages • What is happening in our community / health of local economy - URA • Total output as a community comparison YOY • Revenue update - revenue / expense • Key Developments - 1Q - businesses that close and open / locations / industries • Building Permits YOY and quarterly comparison • Innovations / new energy economy / e commerce updates Mike Beckstead; Josh Birks and I can partner on the requested report. We should have the information for 1Q by mid-April and we will target the first part of May for a Q1 report. Darin Atteberry: Josh, Mike and I have discussed this report before - quick snapshot - a lot of the information exists in the City Manager’s Report Meeting adjourned at noon ATTACHMENT 2 Finance Administration 215 N. Mason 2nd Floor PO Box 580 Fort Collins, CO 80522 970.221.6788 970.221.6782 - fax fcgov.com Finance Committee Meeting Minutes 05/20/19 10 am - noon CIC Room - City Hall Council Attendees: Mayor Wade Troxell, Ross Cunniff, Ken Summers Staff: Darin Atteberry, Kelly DiMartino, Jeff Mihelich, Mike Beckstead, Travis Storin, Blaine Dunn, John Voss, Kevin Gertig, John Phelan, Terra Sampson, Theresa Connor, Sean Carpenter, Lance Smith, Randy Reuscher, Jennifer Poznanovic, Carol Webb, Jason Graham, Link Mueller, John Duval, Noelle Currell, Tyler Marr, Jo Cech, Katie Ricketts, Zach Mozer, Carolyn Koontz Others: Joel Stewart, Milliman, Dale Adamy, R1ST.org ______________________________________________________________________________ Meeting called to order at 10:14 am Approval of Minutes from the April 15th, 2019 Council Finance Committee Meeting. Ross Cunniff moved for approval of the minutes. Ken Summers seconded the motion. Minutes were approved unanimously. A. GERP Review Travis Storin, Accounting Director Blaine Dunn, Sr. Treasury Analyst EXECUTIVE SUMMARY The General Employee Retirement Plan “the Plan” was established in 1971 and was closed to new members in 1999. There are currently 392 total members left in the Plan including active employees, terminated vested employees, and employees receiving a benefit. In 2018 the total pension liability was $66.2M and the fiduciary net position (FNP) for the Plan was $43.1, leaving a net pension liability (NPL) of $23.2M. This was an increase of $12M from the 2017 valuation. Staff evaluated increasing the supplemental contribution to help lower the NPL. Through April 30, 2019, with strong investment returns driving a $9.1M recovery, the NPL is down to $14.1M. Currently staff recommends making no changes to the supplemental contribution. GENERAL DIRECTION SOUGHT AND SPECIFIC QUESTIONS TO BE ANSWERED Does Finance support staff recommendation to hold 2019/2020 supplemental contribution at current level of $1.12M? Does Council Finance desire any additional information? ATTACHMENT 3 2 BACKGROUND/DISCUSSION The Plan is overseen by the General Employees Retirement Committee (GERC). The GERC is comprised of 6 members, 1 from financial services, 4 current or former employees covered by the Plan, and 1 at large member. The GERC administers the Plan including setting the investment policy and making any changes to assumptions used in the actuarial valuations. In 2018 the NPL increased by $12M from 2017, there were three major factors driving this increase: • In 2018 the GERC adopted a new mortality table to better reflect how long people are currently living. With the new mortality table there was an increase of $2.9M to the NPL. • In 2018 the Plan had losses of -4.97% which reduced the FNP and increased NPL by $5.4M. • With the above two changes the plan was projected to run out of money, creating a Depletion Date. When a Depletion Date occurs, the Plan must use a different discount rate than adopted by the GERC. The new discount rate is determined by Government Accounting Standards Board (GASB) standards and must be used for all years after the Depletion Date occurs creating a new hybrid discount rate for the Plan valuation. The use of this new discount rate increased the NPL by an additional $4.0M. Two factors will have the greatest impact on the Plan NPL moving forward: Supplemental contribution and investment returns. With so few employees left in the Plan, participant contributions make up a fraction of future obligations. In 2013 Council approved increasing the supplemental contribution to $1.12M annually. This was to help reach full funding of the plan sooner than previously projected. Based on the valuation ending December 31, 2018 the supplemental contribution would be needed into perpetuity because of the depletion of assets in the plan. However, through April 30, 2019 the Plan has experienced gains of 12.67%. The strong recovery leaves the NPL at an estimated $14.1M, a decrease of $9.1M vs. the valuation date. With this decrease in NPL it is estimated the last supplemental contribution will be made in 2041. With strong investment returns to start the year staff recommends leaving the supplemental contribution at the current level. Staff will continue to monitor the plan and make a recommendation on future contributions following the next actuarial valuation. DISCUSSION / NEXT STEPS Mike Beckstead; over the last 7 years we have brought our assumed discount rate down from around 7% in 2012 to 6.25% which we feel is right for long term health of the assets - we are more conservative than other cities. Governmental Accounting Standards Board - GASB rate is 5.56% on a blended basis - we are required to make a change due to a depletion date at end of 2042 Mike Beckstead; 73-75% range funded (75-80% is the targeted funding percentage) current unfunded is approximately 13% - Discount rate - earnings come down so our goal is to keep our unfunded percentage static ACTION ITEM: Ross Cunniff; please add a new column for future charts (side by side) reflecting the amount in today’s dollars in addition to the years’ dollars ATTACHMENT 3 3 Travis Storin; we think it is prudent to wait another year and hold where we are - if there is a change that needs to be made, we will contemplate that as part of the next 2021-2022 BFO cycle $1.3 - 1.8M is the range $1.8 = hitting full funded status by the time our youngest member turns 65 years old. These amounts are spread across all funds depending on where the employee worked. Mike Beckstead; I believe it is only a matter of time before a significant market correction - we would like to do this as part of the BFO cycle so everything is on the table - Ross Cunniff; I agree that buying when we are in a rebound is not when we should do something but when we are at the bottom of the downturn - future growth. Could we anticipate / set aside half of that amount ($250K) in the mid cycle budget -so that if things get bad, we have a bit of a cushion. This would be done with one-time revenue not on-going. Mayor Troxell; Good presentation - it looks like a perfect storm situation - December 2018 market events drove a lot of the balances - I appreciate the look forward and I support bringing it to your analysis and recommendation Darin Atteberry; this is a very conservative plan - we inherited some really good work - it was conservative in the first place - enrollments were stopped in 1999 - we are in really strong shape relative to the market of pensions. We are talking about the cost of catching up and staying up, but it is not a complete rethink of our business like we are seeing in other plans around the country. ACTION ITEM: Ross Cunniff; I am assuming PFA does a similar analysis of their new defined benefit plan - I would like a memo. City Finance is not involved with PFA. Mike Beckstead; we will play with this in the revision process and we will be back next year to talk more. B. EPIC Program Review – Capital Strategy – Energy Efficiency Loans John Phelan, Energy Services Senior Manager Sean Carpenter, Climate Economy Advisor Travis Storin, Accounting Director EXECUTIVE SUMMARY This item will provide an update since the November 2018 presentation to Council Finance regarding the Epic Program and its capital strategy, including: • Brief history of on-bill financing in Fort Collins; • Program vision and objectives; • Current status of the capital stack and; o Ongoing conversations with potential external lenders; o Next steps regarding securing and appropriation of third-party capital into a revolving loan fund. ATTACHMENT 3 4 GENERAL DIRECTION SOUGHT AND SPECIFIC QUESTIONS TO BE ANSWERED Does the Council Finance Committee desire additional information prior to proceeding with consideration of financial agreements? BACKGROUND/DISCUSSION Fort Collins’ innovative On-Bill Finance program supports a number of community and City Council priorities, including ambitious goals around energy efficiency and renewables, reduced greenhouse gas emissions and increased equity and wellbeing of all residents (see Energy Policy and Climate Action Plan). Meeting these objectives will require, among other activities, that greater numbers of property owners undertake comprehensive efficiency improvements in the coming years, particularly for older, less-efficient rental properties which make up a large percentage of the City’s housing stock. An ongoing and attractive financing structure to support energy efficiency retrofits will be a critical element for success moving forward. On-Bill Financing 1.0 The Home Efficiency Loan Program (HELP, aka OBF 1.0) operated from January 2013 through early 2017 when the maximum outstanding loan balance of $1.6M was reached. During this period 160 loans were made with a median term of ten years, an average loan amount of $8,900 and a zero-default rate. Program processes and interest rates varied over this time period, with a significant ramp up in 2016 with the Council directed interest rate of 2.5% over all loan terms (Figure 1). Figure 1. OBF 1.0 Loan Count and Loan Amount Elevations Credit Union Elevations Credit Union was selected through an RFP process for energy loan financing in 2017. Elevations offers energy efficiency loans for credit union members with a range of interest rates, terms and qualifications, but their product offerings are not “on-bill financing”. The Elevations loan continues to have Utilities staff qualify the efficiency project based on the rebate measures in the Efficiency Works Home program. However, the loan 0 2 4 6 8 10 12 14 16 $0 $20,000 $40,000 $60,000 $80,000 $100,000 $120,000 $140,000 $160,000 $180,000 $200,000 Apr Jul Sep Jan Jun Aug Oct Dec Mar Jul Sep Nov Jan Mar May Jul Sep Nov 2013 2014 2015 2016 Loan Count Loan Amount Sum of LoanAmount Count of ProjectIdentifier ATTACHMENT 3 5 origination and servicing are independent of Utilities programs. Uptake of the program has been minimal, with an average of three to five loans issued per month. With the implementation of Epic Loans, Elevations loans will continue to be an option for interested customers. Mayors Challenge / Epic Program The Mayors Challenge was a yearlong competition that challenged leaders across the United States to uncover and test bold, innovative ideas to confront the toughest problems faced by cities today (www.mayorschallenge.bloomberg.org). Three-hundred and twenty-four cities joined the competition, and nine were selected as winners of the 2018 Mayors Challenge. In January 2018 Fort Collins was selected as one of thirty-five “Champion Cities” in the first phase of the competition, winning $100,000. In October 2018 Fort Collins won the final phase of the competition and the associated $1M prize to implement the Epic Program. The Epic Program was developed to improve energy efficiency of housing stock and the health, wellbeing and equity of all residents, including Low and Moderate Income (LMI) families who rent. In addition to energy efficiency upgrading, the Epic team is collaborating with Colorado State University to track and measure improvements in indoor air quality and qualitative health data from residents living in upgraded properties. In short, the Epic Program is trying to change how people think about the benefits of energy efficiency improvements. It’s not about the houses, it’s about the people living in the houses. Fort Collins has an unusually large proportion of rental properties; approximately 50% of the City’s total housing stock are rentals, including approximately 25% of single-family homes. Much of our housing stock, particularly rentals, are older and could benefit from energy efficiency upgrades. The Epic Program leverages the existing Efficiency Works Homes program (administered in collaboration with Platte River Power Authority) and the revitalized on-bill financing, with the Bloomberg project focus on low-to-moderate income renters and indoor air quality and health / wellbeing improvements (Figure 2). The Epic Program team was inspired by new research and studies around “social determinants of health” and the impacts of housing on health and wellbeing. This project will address the “Climate Economy” via energy efficiency, and in so doing also address other important “human centered” issues in our Community. The program seeks to simultaneously develop solutions for indoor air quality and health / wellbeing, energy efficiency, the rental split incentive, on-bill financing, leveraging third party capital, developing important partnerships, and spreading innovation. Figure 2. Epic Program Structure ATTACHMENT 3 6 The Mayors Challenge award has a three-year performance period for implementing the winning idea. The 2021 goals for the Epic Program are: 1. Epic will upgrade 360 rental properties and 2,000 total homes a. 16% of projects will be financed with an Epic Loan 2. Epic will demonstrate improved health and wellbeing, related to indoor air quality and living environment 3. Savings from reduced energy use and lower utility bills will be available for other family priorities 4. Rental property owners will report financing is not a barrier to energy efficiency upgrades On-bill financing, a critical piece of the Epic Program, was revitalized in August 2018 using the $100,000 award from the champions phase of the Mayors Challenge to further develop the Epic Program idea. The Colorado Energy Office also provided a $200,000 grant at that time to kick off the loan program. The grant agreement with Bloomberg Philanthropies was completed in February 2019 and the initial $100,00 tranche of the $1M was awarded. Another key milestone for setting up the Epic Loans are the revised financial officer’s rules and regulations to allow simplified underwriting. Interest rates will be reassessed regularly and approved by the City CFO, including adjustments based on external capital rates and adding a modest administrative premium in the future. The loan interest rates, effective January 2019, are as follows: Loan Term Interest Rate 3 or 5 years 3.49% 7 or 10 years 3.99% 15 or 20 years 4.49% Financial services for the Epic Loan are delivered by Impact Development Fund, which was selected through a competitive selection process in 2018. At a high level, the process relating to the efficiency and loan programs is: • An efficiency assessment is conducted on the home by the EW-Home advisor/auditor. • Opportunities for improved health, safety, comfort, and energy efficiency are identified and prioritized. Standardized pricing with estimated energy savings can be provided for recommended insulation/ air sealing improvements. • If desired, the property owner can choose to pursue an Epic Loan, as follows: o Customer completes application for a loan to financial services provider o Epic Loan program manager reviews the project & provides initial loan approval o Upon approval, the homeowner and contractor(s) coordinate the timing and completion of the project o After final loan approval by the Epic loan program manager, and receipt of the project completion certificate, final inspections, and waiting the 72 hour right of rescission, loan funds are disbursed to contractor(s) by financial services provider o A UCC lien filing is recorded with Larimer County for the loan (by financial services provider) o Closing documents are provided from financial services provider to the Utilities Billing Department staff to set up the loan in the billing software o Loan payments are added to the customer’s monthly utility services bill Third Party Capital Leveraging external capital is critical to achieving the long-term vision of the Epic Loans. The program team seeks to design an “evergreen” revolving loan fund which: ATTACHMENT 3 7 • Supports residential energy efficiency upgrades for years to come; • Scales to meet long-term efficiency objectives; • Removes financial barriers to efficiency upgrades with attractive rates and terms; • Aligns capital commitments with customer loan terms; and • Minimizes the City and Utilities risk and administrative effort. The Epic Loan is designed to balance the programmatic objectives and financial requirements of the City of Fort Collins, while also meeting the needs and expectations of capital providers and Utilities customers. The City of Fort Collins completed an RFP for qualified firms to provide capital in support of the Epic Loan. The program team is currently in conversations with potential firms and hopes to finalize contracts in the near future. Third party capital offers a continuing source of funds to meet increasing customer demand for energy efficiency financing. Fort Collins Utilities will be the borrower and guarantor of the funds from capital providers, and Fort Collins Utilities will in turn service the repayments to its capital lenders using repayment obligations from customers to Utilities. In this on-bill financing model, capital providers will not be originating loans to, or otherwise engaging directly with, Utilities customers. Instead, capital providers will lend or grant funds to the City, and the City will undertake and / or oversee loan underwriting, origination and collections. Capital providers will therefore have recourse to the Epic fund and repayments for funds borrowed, but not to individual Utilities customers (Figure 3). Figure 3. Capital and Repayment Structure Capital sources for the Epic Loan need to align with the following high-level objectives: • Attractive: The loan program must be able to provide attractive loan terms to customers, specifically attractive interest rates. • Scalable: The program must be scalable in support of Fort Collins ambitious energy goals. It is anticipated that Fort Collins will upgrade thousands of homes in the coming years. • Simple: The implementation and administration of the program must be as simple as possible for all parties, including customers, Utilities, and the capital partners. Potential Size of Loan Portfolio During OBF 1.0 from July 2015 to February 2017, the rate of loan activity was equivalent to approximately 120 loans and $1M annually. To provide sufficient financing for the expected number of projects, the short-term (3-4 year) capital goal is $7M to $8M. This assumes $1.5M to $2M annually in energy efficiency project financing. The longer-term capital goal is up to $16M in order to establish a self-sustaining revolving loan. With a range of loan terms from 3 to 15 years, the expectation for a breakdown of necessary third-party capital amounts and terms would be: Capital source Utilities Customers ATTACHMENT 3 8 Loan Term Percentage of Portfolio 3 & 5 years 30% 7 & 10 years 40% 15 years 30% Potential Financial Solution Utilities intends to create a sustainable cycle of loans and repayments similar in concept to a revolving loan fund. Currently, the Epic Program team is engaged with the following capital sources and amounts, which will be blended to create attractive interest rates that are below market rates for customers: Capital Type Provider Term Rate Amount Status Low or No Cost Bloomberg Philanthropies – Champions Phase Award N/A 0% $100,000 In hand or recently deployed Bloomberg Philanthropies - Award N/A 0% $600,000 Committed Colorado Energy Office – Initial Grant N/A 0% $200,000 In hand or recently deployed Colorado Energy Office – Grant or Loan TBD TBD TBD Under discussion External Market National Commercial Bank 5 & 10 year 3.95% - 4.25% $2,500,000 Under discussion National Commercial Bank 5 & 10 year TBD TBD Under discussion National Green Bank 10 & 15 year 5.75% $2,500,000 Under discussion National impact investor 7 year 5-7% $2,500,000 Under discussion Internal Repayments of previously paid loans N/A 0% $400,000 Committed The City will blend capital sources and interest rates into loan offerings that recover the cost of capital and include a modest administrative premium to cover administrative costs in the future. The example in Figure 4 shows how capital sources and interest rates can be calculated to understand total funds and average interest rate, as well as broken down into short, medium and long-term rates and amounts. Figure 4 is an example of how capital sources will determine the rate offered to customers based on loan term. ATTACHMENT 3 9 Figure 4. Example Capital Stack and Loan Terms Flexible structures which minimize the need for the City to carry non-deployed debt capital, such as lines of credit versus term loans, are being proposed. Other key considerations include the Light & Power plans for a 2023 debt offering and the need to protect the AA- electric credit rating and Broadband’s coverage covenants. In all cases, Fort Collins Utilities would be the borrower, with the third-party funds being loaned to customers by Utilities. Fort Collins Utilities would be responsible for the repayment to the capital provider. In turn, Utilities customers carry the obligation for repayment of loans to the City via their utility bill. Utilities has various code-specified tools for recourse of delinquent utility bills that makes the risk profile for the Epic Loan portfolio extremely low. Third-party capital providers will have a senior pledge on customer loan repayments and second position on Electric Utility revenues, after the more senior pledge held by revenue bondholders. Fort Collins Utilities recognizes that this proposed financing model is unique for a municipal-owned utility, and as such we are committed to working with capital providers to “co-create” a viable and scalable financing model that is workable and beneficial for all parties. We also intend to continually Capital Sources Principal Rate Equity Bloomberg (grant) 10% $ 700,000 0.00% Colorado Energy Office Grant 3% $ 200,000 0.00% L&P available cap 6% $ 400,000 0.00% Mission-driven Capital 0% $ - 0.00% Debt State of CO Loan 15% $ 1,000,000 1.75% Nat'l Commercial Bank - 5 yr (Loan) 18% $ 1,250,000 3.95% Nat'l Commercial Bank - 10 yr (Loan) 18% $ 1,250,000 4.25% Nat'l Green Bank - 15 yr (Loan) 29% $ 2,000,000 5.75% Total 100% $6,800,000 3.46% Loans Offered Tranche 1 Tranche 2 Tranche 3 Total Cost of Capital 2.71% 2.85% 4.60% 3.46% Amount available $1,820,000 $2,480,000 $2,500,000 $6,800,000 Term offered 3-5 yr term 7-10 yr term 15 yr term - Rate offered 3.75% 4.25% 4.75% 4.30% ATTACHMENT 3 10 search for new capital sources to add to the capital stack that provide the most desirable terms and conditions for customers and the City. Next Steps The Epic Program team is currently in discussions with third-party capital providers to develop lending agreements. The Epic Program team proposes the following review and approval process for lending agreements: • Staff will continue to move forward with developing finalized scopes and terms. • Leadership stakeholders, such as City CFO and Utilities FP&A Director, will review agreements. • CAO, particularly internal legal counsel, will review agreements. Bond counsel is not engaged. • City Purchasing will review agreements. • The Finance Committee has an additional review of lending agreements. • Staff proceeds with City Council consideration via ordinance with a target approval of August 2019. There will be a separate ordinance prepared for each lender. The Epic Program team seeks guidance on the Finance Committee’s desire for additional information before proceeding with City Council consideration of financial agreements. DISCUSSION / NEXT STEPS Mike Beckstead; solving for 10 year future – this is specific to solving for the 3 year future – coming up with a blended cost of capital – set the future aside and just focus on $7-8M borrowing for today – dollar amount that will get a lot done during time frame – then in 2024 -2025 we will be back planning how to replicate Capital Stack and Loan Terms - we are hoping to come back with offers from external lenders Mayor Troxell; this looks good - thank you for all of the hard work! Some of this is out of the Energy Efficiency Works - you have had other communities’ approach you with similar concepts - John Phelan; we have been working with the Colorado Energy office - funds that have provided and plan to provide – their interest is looking at replication across the state. There was a Colorado Green Bank established late in the Hickenlooper administration. Bloomberg is interested in Fort Collins success as well as they are looking for scalability and replicability. Mayor Troxell; SAR related to energy efficient Community Development Block Grant (CDBG) program - administer something like that through the Department of Energy John Phelan, they developed something similar to CDBG during the Obama Administration (stimulus funding) Fort Collins received a formulaic distribution based on our population size - there was some discussion at the Mayor’s Conference about reestablishing that - we looked at that and realized It was likely to be one time funds so we used that for a list of potential projects across the city. The 3rd party are probably the most scalable continue to look for grants – health angle – energy efficiency angle – we anticipate that part being a continual process. Mike Beckstead; John just shared that we are looking at 3rd party external financing partners ATTACHMENT 3 11 Part of that is we want to borrow at a term that is at least greater than the term we lend at – we see pretty good activity in the 5-10 year term lending range but we are finding it more difficult to find financing partners who want to play in a 15-10 year term. Biggest challenge has been getting the 15 year money in hand - we have a term sheet that goes out that far - we have 5 different term sheets in hand - we do have viable leads that go out that far and we are hoping to come back to Council Finance in July with 2-3 ready to proceed to contracts with by ordinance Ken Summers; should we design a program for 5-10 year loans instead of longer term? Mike Beckstead; we are trying to meet an objective to make projects more affordable for longer term investments - if you are putting solar on your house or buying a new furnace - something with a long life - having a 15-year loan would be helpful. John Phelan; we have the flexibility to match the programmatic components with the financial components - we have done that out to 20 years - we are constantly looking at the whole picture trying to solve for all of these things simultaneously. Mayor Troxell; very good C. Fee Updates - Utility & Capital Expansion Jennifer Poznanovic, Senior Manager, Sales Tax / Revenue Lance Smith, Director, Utilities FP&A Randy Reuscher, Lead Analysis, Utility Rate SUBJECT FOR DISCUSSION CEF & Utility Fee Update EXECUTIVE SUMMARY Coordination of Council approved fees began in 2016 to provide a more holistic view of the total cost impact. Previously, fee updates were presented to Council on an individual basis. After the 2019 fee update, fee phasing will be complete with regular two and four-year cadence updates beginning in 2021. 2019 fee updates include: Development Review fees, Electric Capacity fees, Water Supply Requirement fees, Wet Utility Plan Investment Fees and Step III of the 2017 Capital Expansion Fees. Staff proposes the following fee changes: • Wet Utility PIFs as proposed • Electric Capacity Fees as proposed • Water Supply Requirement Fee as proposed • 100% of proposed 2017 Capital Expansion Fees (Step III) • Transportation Capital Expansion Fees (inflation only) Development Review Fees will be reviewed at the June Council Finance Committee meeting. ATTACHMENT 3 12 GENERAL DIRECTION SOUGHT AND SPECIFIC QUESTIONS TO BE ANSWERED Does Council Finance Committee support the proposed fee updates and outreach plan? BACKGROUND/DISCUSSION Since the fall of October 2016, staff has worked to coordinate the process for updating all new development related fees that require Council approval. Development related fees that are approved by Council are six Capital Expansion Fees, five Utility Fees and Building Development Fees. Previously, fee updates were presented to Council on an individual basis. However, it was determined that updates should occur on a regular two and four-year cadence and fees updates should occur together each year to provide a more holistic view of the impact of any fee increases. Impact fee coordination includes a detailed fee study analysis for Capital Expansion Fees (CEFs), Transportation Capital Expansion Fees (TCEFs) and Development Review Fees every four years. This requires an outside consultant through a request for proposal (RFP) process where data is provided by City staff. Findings by the consultant are also verified by City staff. For Utility Fees, a detailed fee study is planned every two years. These are internal updates by City staff with periodic consultant verification. In the future, impact fee study analysis will be targeted in the odd year before Budgeting for Outcomes (BFO). In years without an update, an inflation adjustment occurs. Type of Fee Fee Name Capital Expansion Neighborhood Park Capital Expansion Community Park Capital Expansion Fire Capital Expansion Police Capital Expansion General Government Capital Expansion Transportation Utility Water Supply Requirement Utility Electric Capacity Utility Sewer Plant Investment Utility Stormwater Plant Investment Utility Water Plant Investment Building Development Development Review & Building Permit Fees ATTACHMENT 3 13 Below is the current fee timeline: Phase I of the fee updates included CEFs, TCEFs, Electric Capacity Fees, and Raw Water/CIL and were adopted in 2017. Phase II included Wet Utility PIFs and step II of CEFs and TCEFs, which were approved in 2018. Development review and building permit fees were originally included in Phase II but were de-coupled from the 2018 update. Due to the concern in the development and building community around fee changes, Council asked for a fee working group to be created to foster a better understanding of fees prior to discussing further fee updates. In August of 2017, the Fee Working Group commenced comprised of a balanced group of stakeholders – citizens, business-oriented individuals, City staff and a Council liaison. The Fee Working Group met 14 times and was overall supportive of the fee coordination process and proposed fee updates. The 2019 phase III update includes Development Review fees, Electric Capacity fees, Water Supply Requirement fees, Wet Utility Plan Investment Fees and Step III of the 2017 Capital Expansion Fees. After the 2019 fee update, fee phasing will be complete with regular two and four-year cadence updates beginning in 2021. 2019 Utility Fee Updates The proposed changes to Utility Fees for a single-family, residential home include a 1.7% increase to the Electric Capacity Fee (ECF) and increases to the three Wet Utility Fees ranging between 1.5% and 6.7%. The Water Plant Investment Fee (PIF) is proposed to increase 6.7%, the Wastewater PIF is proposed to increase 1.5% and the Stormwater PIF is proposed to increase 3.3% from current fee levels. The two main drivers for the increases include: • New capital project spending, which increases the overall value of the system • Annual increases in construction costs, which also increases the replacement value of existing system The proposed change to the Water Supply Requirement increases the cost of 1 acre-foot of required raw water from $17,300 to $21,500, or 24%. The primary drivers for this increase are: • Updated construction cost estimates associated with the Halligan Water Supply Project • Increasing costs of future water rights that will need to be acquired to optimize the water rights portfolio The chart below summarizes the proposed Utility Fees for a single-family home, assuming an 8,600 square feet lot and 4 bedrooms: ATTACHMENT 3 14 2019 Capital Expansion Fee Updates The chart below shows the current and proposed fee updates for CEFs: Step III fees are an 11% increase from current fee levels (Step II). CEF fee increases are 100% of full fee levels recommended in 2017. The CPI-U index for Denver-Aurora-Lakewood is used for CEF inflation. An inflation estimate of 3.2% has been used, but an update will be available in August 2019. Outreach Plan In an effort towards better communication, outreach and notification of impact fee changes, staff plans to meet with 15 organizations across the City in the summer of 2019. Step III - Full fees proposed in 2017 Land Use Type Unit N'hood Park Comm. Park Fire Police Gen. Gov't Current Total Step III Total w Inflation % Increase w Inflation Residential, up to 700 sq. ft. Dwelling $1,721 $2,430 $421 $236 $574 $5,152 $5,724 11% Residential, 701-1,200 sq. ft. Dwelling $2,304 $3,253 $570 $319 $774 $6,911 $7,679 11% Residential, 1,201-1,700 sq. ft. Dwelling $2,516 $3,552 $620 $347 $845 $7,543 $8,381 11% Residential, 1,701-2,200 sq. ft. Dwelling $2,542 $3,589 $630 $352 $858 $7,630 $8,478 11% Residential, over 2,200 sq. ft. Dwelling $2,833 $4,001 $701 $392 $955 $8,502 $9,447 11% Commercial 1,000 sq. ft. 0 0 $531 $297 $1,451 $2,182 $2,424 11% Office and Other Services 0 0 $531 $297 $1,451 $2,182 $2,424 11% Industrial/Warehouse 1,000 sq. ft. 0 0 $124 $69 $342 $512 $569 11% ATTACHMENT 3 15 Below is the 2019 fee roadmap: DISCUSSION / NEXT STEPS; Non BFO year - cadence starts with this year’s work This is a different Fee Working Group - focused on developers Ross Cunniff; we had a Council liaison we didn’t re-assign - Is this an Administrative group or a Council group? Mike Beckstead; I haven’t been too close to this as Tom Leeson and Noelle Currell pulled the team together based on customers they thought would be impacted. The development fees per code are approved administratively. I will get a list of who is on the committee and share that back. Darin Atteberry; City Manager appointed with a Council liaison. Mike, let chat about the team makeup with Tom Leeson. Organization Staff Affordable Housing Board All Building Review Board All Economic Advisory Commission All Fort Collins Board of Relators All Local Legislative Affairs Committee All Northern Colorado Homebuilder's Association All Super Issues Forum All Development Review Advisory Board Dev. Review Downtown Development Authority Dev. Review Housing Catalyst Dev. Review North Fort Collins Business Association Dev. Review Planning & Zoning Board Dev. Review South Fort Collins Business Association Dev. Review Energy Board Utilities Water Board Utilities March May June June/July August October 1/1/2020 Capital Expansion Fees CFC Outreach CFC Council Effective Transportation CEFs Electric Capacity Fees CFC Outreach CFC Council Effective Water Supply Requirement CFC Outreach CFC Council Effective Wet Utility Fees CFC Outreach CFC Council Effective Development Review Fees CFC CFC CFC Outreach CFC Council Effective ATTACHMENT 3 16 Mayor Troxell; Council priority as it relates to affordability - add a dimension of regulatory elements that play into affordability as it relates to some of the fees. Jeff Mihelich; I hear you and I understand - we will be addressing this as a Council Priority Mayor Troxell; we talk about Fee Stacking - more of the of the off costs that add to affordability Randy Reuscher; Utility Fee slide - onetime fees for connection (buy-in) to the system - new development only Water - driven by peak day flow by each category and total consumption - GPD = Gallons Per Day Jennifer Poznanovic; five Capital Expansion Fees - Step III - 11% increase which brings them to full fee level recommended in the 2017 study - Fee Roadmap - schedule - all fee categories updating in 2019 except Transportation Mayor Troxell; good outreach scheduled between now and August - I think you are on a good path - Let’s do the plan and after we hear about the outreach we will reassess where we are as it goes to Council Ross Cunniff; are Building Review Fees administrative? Mike Beckstead; historically some of them have gone to Council for approval even though code lists them as administratively approved. Ross Cunniff; do we charge Development Review Fees based on cost or some average? I understand that conversation is coming Mike Beckstead; that is correct - Tom Leeson and Noelle Currell - their intent is to craft fees that cover 100% of the cost of providing the service - no more - no less ACTION ITEM: Ross Cunniff; outreach - previous Fee Working Group provided a report. Are City Boards and Commissions provide a copy? Can they be provided a copy? Include Boards and Commissions who participate in the organized outreach. Mayor Troxell; I am good Ken Summers: I am good D. Sidestream Treatment Project Jason Graham, Director, Plant Operations Carol Webb, Deputy Director, Utilities Link Meuller, Special Projects Manager EXECUTIVE SUMMARY The purpose of this agenda item is to request an appropriation for additional funding for the Drake Water Reclamation Facility (DWRF) Sidestream Treatment Project. This request is necessary to complete the permit- required project within the required timeframe to meet DWRF’s National Pollution Discharge Elimination System (NPDES) Phosphorus (P) Compliance Schedule deadline of December 31, 2020. Successful operation of this ATTACHMENT 3 17 infrastructure also will earn regulatory credits to delay future capital project expenses by upwards of 10 years. This request is an off-cycle request vs. a mid-cycle request due to the regulatory nature and schedule deadlines required by CDPHE. GENERAL DIRECTION SOUGHT AND SPECIFIC QUESTIONS TO BE ANSWERED Should staff move forward with this off-cycle appropriation request for the Sidestream Project? BACKGROUND/DISCUSSION The cost estimate at 60% project design, completed in January 2019, for the Sidestream Treatment project is greater than the approved budget. The purpose of this agenda item is to request Council’s approval increase the project budget from $4.3 million to $5.4 million for an additional appropriation of $1.1 million. KEY PROJECT DRIVERS The Sidestream Treatment project is necessary for DWRF to meet future nutrient water quality regulations by Colorado Department of Public Health and Environment (CDPHE). The DWRF National Pollutant Discharge Elimination System (NPDES) permit includes a phosphorus Compliance Schedule to ensure the City is successful in meeting the required phosphorus limits by January 01, 2021. The Sidestream Treatment project is a necessary addition required for DWRF to meet these proposed phosphorus standards. Nutrient Removal Projects have been identified as part of the Utility’s Capital Improvement Planning (CIP) and Master Planning efforts for the last ten years. The current CIP identified Nutrient Removal projects required to meet future nutrient limits by the Environmental Protection Agency (EPA) and CDPHE and have future potential costs of approximately $70 million by 2028. The Wastewater Utility has been actively planning to minimize this cost as much as possible through participation in the CDPHE Nutrient Incentive Program and the AWWA Clean Water Partnership. Participation in these programs could provide the City both schedule and financial relief of up to 10 years. A conceptual class 5 cost estimate of $4.3 million was developed for the 2017-2018 BFO cycle based upon capacity, modeling, analogous projects and the available Sidestream Treatment technologies. As stated in the BFO offer, the design was based on a conceptual design and a complete design could result in an increase or decrease of the cost to meet the design deliverables. As designed progressed, additional detail, including equipment selection, and other specifications resulted in increased project costs. A contingency in the additional budget request has been included, appropriate for the current level of design. The following three major factors impacted the budget requiring this appropriation request: 1. A new sludge feed pump station was required in addition to other improvements increasing construction costs approximately $625,000. It had been anticipated, but not feasible, that the existing sludge pumps could be used 2. Completion of the 60% design cost estimate (class 2) revealed an error in the original BFO class 5 estimate allowing the original BFO request to be approximately $325,000 under-funded. In the future BFO offer estimates, including backup documentation will be provide to management staff for review 3. The retirement of the Utilities’ lead programming engineer impacted the ability to self-perform all the process programming, integration, and operator interface requirements of the plants. Additional support from the equipment manufacturers and consulting engineers is required for process programming and integration costing approximately $150,000 ATTACHMENT 3 18 For the 2019-2020 BFO budget cycle, steps were taken to address the budgeting issues that occurred for this project. Larger projects will start with a “design only” phase so that better construction estimates can be obtained prior to appropriation. The current DWRF discharge permit requires the City to be in compliance with nutrient regulations by January 1, 2021. The permit’s compliance schedule also indicates the construction must be started by December 31, 2019. It is critical to begin construction as soon as possible in 2019 in order to give facility staff adequate time to optimize the system to comply with required nutrient limits by the January 1, 2021 deadline. ENVIRONMENTAL IMPACTS In March 2013, the State of Colorado passed Regulation #85, requiring Publicly Owned Treatment Works (POTWs) with greater than 2 million gallons per day capacity to meet more stringent effluent water quality. The regulation mandates that existing POTWs limit their effluent discharge on a monthly median value of Total Phosphorus to 1.0 mg/L and Total Inorganic Nitrogen (TIN) of 15 mg/L. DWRF currently meets the TIN limit but the improvements installed with the Side Stream project are necessary to help meet the Total Phosphorus limit. While phosphorus and nitrogen are building blocks of organic life, high concentrations in lakes, reservoirs and receiving waters can lead to lower dissolved oxygen levels, poison aquatic life, and eutrophication. POTWs are only one of three major sources of nutrient contamination of receiving waters (urban and agricultural non-point source run-off being the other two) but are the easiest to regulate being a point source contributor. ALTERNATIVE ANALYSIS As project design evolved and the need for additional funding became apparent, the project team evaluate the following project alternatives: 1. Value Engineering – The project team, including City staff, general contractor, and design engineer evaluated construction and design variables that could be eliminated and / or reduced and still deliver an effective project. While numerous items were removed or revised, this evaluation was not successful in bringing the overall project costs down to within the available budget. 2. Not complete the project – This alternative would jeopardize not only immediate regulatory compliance performance but future nutrient compliance issues as well. 3. Request $1.1 M as a mid – cycle appropriation request – This alternative would jeopardize the City’s ability to comply with NPDES P Standard Compliance Schedule deadlines. 4. Request $1.1 M as an off – cycle appropriation request – This is the preferred and recommended alternative by City Staff. This alternative is also recommended by the City’s Water Board. CITY FINANCIAL IMPACTS This O appropriate $1,111,000 of Wastewater Fund Reserves for the DWRF Sidestream Treatment Project. Adequate funds exist in the Wastewater Fund reserves to cover this request for additional appropriations. In the latest 10-year Wastewater Capital Improvement Program (CIP), $89M of capital improvements were identified and this is a relatively small increase. A rate increase beyond what is already planned will not be needed as a result of this request. ATTACHMENT 3 19 DISCUSSION / NEXT STEPS The Water Board voted unanimously to recommend approval of this appropriation at their April 18th, 2019 meeting. Ross Cunniff; this looks great - confirming that this an appropriation out of the Wastewater Fund. Jason Graham; that is correct Ross Cunniff; what about the biosolids? Jason Graham; the biosolids will continue to go to Meadow Springs Ranch which we have owned since the mid 90’s - 26,600 acres - about 30 miles north of Fort Collins adjacent to Soapstone Prairie (this function used to be done at Prospect and I25). This project does not harvest biosolids as there isn’t a market for it currently - but could be a potential revenue source in the future Link Mueller; we are designing the system to be able to add on the harvesting aspect easily. Ken Summers; slide 9 states - $80 -100M of capital work is expected to be needed between 2017 and 2026 in addition to the current capital appropriations. What is current? not current? - what are some of those projects? Jason Graham; we are discussing Regulation 85. Another regulation (31) comes in effect as of 2027 which has the potential to drive down the regulations even more with phosphorus and nitrogen - Associated with that level of compliance – this project does have the potential to offset the costs - we get credit for each year we are compliant / stay below the black line. (see below) Carol Webb; I believe that the $80-100M is the fund as a whole - we anticipate that much across the fund over the next ten years. We already have projects that Council has appropriated dollars for. ATTACHMENT 3 20 Mike Beckstead; every 2 years we bring the long-term capital plans for each of the four utilities to Council Finance. Anticipated capital spend and rate structure needed to support that We are planning to bring these plans forward in November of this year. We could copy you on the last long-term financial plan if you would like. Mayor Troxell; You need the financing now to meet construction start. Jason Graham; we are hoping to bring this to Council in June (schedule permitting). O&M will be absorbed by our staff – we have a contract for year 1 to maintain it as we start it up and get it going. Meeting adjourned at 11:18 am ATTACHMENT 3 Finance Administration 215 N. Mason 2nd Floor PO Box 580 Fort Collins, CO 80522 970.221.6788 970.221.6782 - fax fcgov.com Finance Committee Meeting Minutes 08/19/19 10 am ‐ noon CIC Room ‐ City Hall Council Attendees: Mayor Wade Troxell, Ross Cunniff, Ken Summers, Emily Gorgol Staff: Darin Atteberry, Kelly DiMartino, Mike Beckstead, Jeff Mihelich, Travis Storin, Lawrence Pollack, Jennifer Poznanovic, Kelley Vodden, Jennifer Selenske, Kerri Ishmeal, Renee Callas, John Voss, Sean Carpenter, Terra Sampson, Kim DeVoe, John Duval, Tyler Marr, Dave Lenz, Jo Cech, Katie Ricketts, Zach Mozer, Lance Smith, Joaquin Garbiso, Sue Beck‐Ferkiss, Beth Sowder, Carolyn Koontz Others: Kevin Jones, Chamber of Commerce Dale Adamy, R1st.org ______________________________________________________________________________ Meeting called to order at 10:02 am Approval of Minutes from the July 15, 2019 Council Finance Committee Meeting. Emily moved for approval of the minutes as presented. Mayor Troxell seconded the motion. Minutes were approved unanimously. A. 2018 Fund Balance Review Travis Storin, Accounting Director SUBJECT FOR DISCUSSION: Status of Fund Balances and Working Capital EXECUTIVE SUMMARY: The attached presentation gives a status of fund balances and working capital. Fund balances are primarily considered for funding one‐time offers during the Budgeting for Outcomes process. To a lesser extent, available monies are also used to fund supplemental appropriations between BFO cycles. GENERAL DIRECTION SOUGHT AND SPECIFIC QUESTIONS TO BE ANSWERED None, this is an update for Council Finance Committee. BACKGROUND/DISCUSSION To communicate what funding is available to support emerging issues and initiatives in the next budget cycle. In each fund the balances are shown vertically by the accounting classifications. The amounts are then additionally categorized into Appropriated, Available with Constraints, and Available for Nearly Any Purpose. ATTACHMENT 4 2 Appropriated, Minimum Policy or Scheduled is comprised of minimum fund balances established by policy, funds from the 2018 balance that have been appropriated in 2019, funds set aside for 2020 in the 2019‐2020 budget, and amounts for projects specifically identified by voters. An example of the later is Community Capital Improvements Plan. Available with Constraints are those balances available for appropriation but within defined constraints. An example is 4th of July donations. They are restricted for that purpose, but still available for appropriation. Available for Nearly Any Purpose are balances that are available for appropriation at the discretion of the City Council. DISCUSSION / NEXT STEPS ATTACHMENT 4 3 ATTACHMENT 4 4 All City Funds ‐ Broadband will not be on the list until we develop a working capital position. Ken Summers; where do we stand with reserves that have been used for Council Action in 2019? Mike Beckstead; a bit of both ‐ very difficult to give a single answer as it varies by fund. For the General Fund in 2018 ‐ we had $4.8M unassigned GF reserves at the end of 2017 How much we used – not sure but not all of it ‐ we would have to go through the entire budget document and identify where we used reserves During the year we keep track of the prior years’ reserves. For example, some of the unspent was used for; $49K for train horn noise, $20K code enforcement of backyard burning / outdoor firepit Some funds were also used for Short Term Rentals Ken Summer; General Fund would be the one to keep the closet eye on Trend line is a percent of annual operating expenses ‐ not all are green dollars we could spend ‐ some nuances in the details – something less than 4‐5 months of capacity Mayor Troxell; $4.7M loaned to URA ‐ was refinancing that the intention all along? ATTACHMENT 4 5 Mike Beckstead; yes, that was our intention is to refinance soon Travis Storin; North College set a model for that Mayor Troxell; good news Mike Beckstead; our fund balances are healthy ‐ we have gone from mid 50’s to high 40’s in the last few years ‐ we are working with Moody’s because our fund balance is a big part of our credit rating ‐ we want to do some data gathering beyond GFOA around where is the threshold that might put our credit rating at risk? B. Comprehensive 2019 Fee Updates Jennifer, Poznanovic, Revenue Manager Lance Smith, Utilities, Director FP&A SUBJECT FOR DISCUSSION: Comprehensive 2019 Fee Update EXECUTIVE SUMMARY Coordination of Council approved fees began in 2016 to provide a more holistic view of the total cost impact. Previously, fee updates were presented to Council on an individual basis. After the 2019 fee update, fee phasing will be complete with regular two and four‐year cadence updates beginning in 2021. 2019 fee updates include: Electric Capacity fees, Water Supply Requirement fees, Wet Utility Plan Investment Fees and Step III of the 2017 Capital Expansion Fees. Staff proposes the following fee changes:  Wet Utility PIFs as proposed  Electric Capacity Fees as proposed  Water Supply Requirement Fee as proposed  100% of proposed 2017 Capital Expansion Fees (Step III)  Transportation Capital Expansion Fees (inflation only) Development Review Fees were initially planned to be part of the 2019 update but have been decoupled and will come forward at a later date. GENERAL DIRECTION SOUGHT AND SPECIFIC QUESTIONS TO BE ANSWERED Does Council Finance Committee support the following proposed next steps? • October 8th: Council Work Session • November 5th & 19th: Ordinance readings subject to Council direction • 2021 updates effective January 2022 BACKGROUND/DISCUSSION Since the fall of October 2016, staff has worked to coordinate the process for updating all new development related fees that require Council approval. Development related fees that are approved by Council are six Capital Expansion Fees, five Utility Fees and Building Development Fees. ATTACHMENT 4 6 Previously, fee updates were presented to Council on an individual basis. However, it was determined that updates should occur on a regular two and four‐year cadence and fees updates should occur together each year to provide a more holistic view of the impact of any fee increases. Impact fee coordination includes a detailed fee study analysis for Capital Expansion Fees (CEFs), Transportation Capital Expansion Fees (TCEFs) and Development Review Fees every four years. This requires an outside consultant through a request for proposal (RFP) process where data is provided by City staff. Findings by the consultant are also verified by City staff. For Utility Fees, a detailed fee study is planned every two years. These are internal updates by City staff with periodic consultant verification. In the future, impact fee study analysis will be targeted in the odd year before Budgeting for Outcomes (BFO). In years without an update, an inflation adjustment occurs. Phase I of the fee updates included CEFs, TCEFs, Electric Capacity Fees, and Raw Water/CIL and were adopted in 2017. Phase II included Wet Utility PIFs and step II of CEFs and TCEFs, which were approved in 2018. Development review and building permit fees were originally included in Phase II but were decoupled from the 2018 update. Due to the concern in the development and building community around fee changes, Council asked for a fee working group to be created to foster a better understanding of fees prior to discussing further fee updates. In August of 2017, the Fee Working Group commenced comprised of a balanced group of stakeholders – citizens, ATTACHMENT 4 7 business‐oriented individuals, City staff and a Council liaison. The Fee Working Group met 14 times and was overall supportive of the fee coordination process and proposed fee updates. The 2019 phase III update includes Electric Capacity fees, Water Supply Requirement fees, Wet Utility Plan Investment Fees and Step III of the 2017 Capital Expansion Fees. After the 2019 fee update, fee phasing will be complete with regular two and four‐year cadence updates beginning in 2021. Development Review Fees were initially planned to be part of the 2019 update but have been decoupled and will come forward at a later date. The 2019 Fee Working Group is focused on Development Review fees only and has met three times as of mid‐August. The 2019 Fee Working Group consists of a balanced group of stakeholders – citizens, business‐oriented individuals and City staff. 2019 Utility Fee Updates The proposed changes to Utility Fees for a single‐family, residential home include a 1.7% increase to the Electric Capacity Fee (ECF) and increases to the three Wet Utility Fees ranging between 1.5% and 6.7%. The Water Plant Investment Fee (PIF) is proposed to increase 6.7%, the Wastewater PIF is proposed to increase 1.5% and the Stormwater PIF is proposed to increase 3.3% from current fee levels. The chart below summarizes the proposed Utility Fees for a single‐family home, assuming an 8,600 square feet lot and 4 bedrooms: 2019 Capital Expansion Fee Updates The chart below shows the current and proposed fee updates for CEFs: ATTACHMENT 4 8 Step III fees are an 11% increase from current fee levels (Step II). CEF fee increases are 100% of full fee levels recommended in 2017. The CPI‐U index for Denver‐Aurora‐Lakewood is used for CEF inflation (1.3% in 2019). Comparison Charts Fort Collins proposed fees are in the upper‐middle of the pack: The following chart shows neighboring cities across water districts with and without raw water. Fort Collins fees are in line with neighboring cities: Step III - Full fees proposed in 2017 Land Use Type Unit N'hood Park Comm. Park Fire Police Gen. Gov't Current Total Step III Total w Inflation % Increase w Inflation Residential, up to 700 sq. ft. Dwelling $1,721 $2,430 $421 $236 $574 $5,152 $5,724 11% Residential, 701-1,200 sq. ft. Dwelling $2,304 $3,253 $570 $319 $774 $6,911 $7,679 11% Residential, 1,201-1,700 sq. ft. Dwelling $2,516 $3,552 $620 $347 $845 $7,543 $8,381 11% Residential, 1,701-2,200 sq. ft. Dwelling $2,542 $3,589 $630 $352 $858 $7,630 $8,478 11% Residential, over 2,200 sq. ft. Dwelling $2,833 $4,001 $701 $392 $955 $8,502 $9,447 11% Commercial 1,000 sq. ft. 0 0 $531 $297 $1,451 $2,182 $2,424 11% Office and Other Services 0 0 $531 $297 $1,451 $2,182 $2,424 11% Industrial/Warehouse 1,000 sq. ft. 0 0 $124 $69 $342 $512 $569 11% ATTACHMENT 4 9 Fort Collins fees and the cost of code is leveling as a percentage of median new home sales price: Community Outreach In an effort towards better communication, outreach and notification of impact fee changes, staff met with 9 organizations across the City in the summer of 2019. ATTACHMENT 4 10 Overall, organizations were supportive of the approach and cadence. There was acknowledgement that regular fee updates are necessary. Staff also heard:  Support for fee group recommendations  Concerns about attainable housing ‐ it may be less desirable to live here  Policy questions on development standards going forward, having alignment on total cost including operations and maintenance Below is the 2019 fee roadmap: DISCUSSION / NEXT STEPS: Mayor Troxell; slide 7 ‐Fee Comparison for Median New Homes Sales Price How do we evaluate our peer cities? Adjacent front range such as Severance, Firestone and others in that space. ATTACHMENT 4 11 Mike Beckstead; we could definitely expand this list to included others in the area ‐ Same median home price ‐we need to understand their fees well enough to know what they pay ‐ that is the methodology behind this. Darin Atteberry; Severance and Johnstown – benchmark cities have been more of a national market – with fee competitiveness but that is not the market ‐ we want to bring relevant data to Council ‐ not just theoretical Mike Beckstead; Do they have Impact Fees? If they do, we can certainly add them. Darin Atteberry; Metro Districts change portfolio Mayor Troxell; we don’t have insight on what to recommend ‐ some communities are not there yet but there is a lot of activity. Mike Beckstead; before we bring fees back in 2020 we will take a look at who best to compare with how and why and come back with a list. Emily Gorgol; CEF ‐ types of housing ‐ increase with inflation ‐ how can we somehow encourage smaller houses to be built? ‐could fees not increased as much for building a smaller home? Mike Beckstead; page 6 ‐ you can see the different size homes we apply fees to ‐ 90% of our fees are for 2200 sq. ft and above so that is the majority of what is getting built. During the Fee Working Group discussions we talked about expanding to 8 fee categories which will address part of what you are saying. The legal issue we wrestle with is we can’t artificially raise one fee and lower another to motivate certain behaviors ‐fees have to be based on a legal nexus – expand categories and maybe shift the line a little Darin Atteberry; traffic modeling ‐ family multiple unit less travel in trips than single family ‐ driven by behaviors not footprint ‐ lower trip generation ‐ lower rate Smaller family size ‐ less trip generation ‐ lower rate Council Policy ‐ you have different areas where you can affect cost but this is based on the legal nexus Ken Summers; slide 7 ‐ CEP, impact fees are higher than other surrounding communities ‐ described as being in the middle of the pack ‐ Worth noting that with all of our higher fees ‐ how low Utilities are in comparison to others. Is that a reflection of owning our own electric? The breakdown is interesting. Mike Beckstead; Timnath uses a Metro District as a revenue source (tax increment financing) for a lot of their infrastructure so they have very low impact fees. Communities are at different stages of development in terms of development fees. Others have crafted different types of revenue sources – there is a story behind the numbers. Ken Summers; future expansion here based on Metro District ‐ those builders still incur all of those capital expansion fees. I attended a conference last week and we discussed affordable housing ‐ lobby federal government for more money ‐ got into the nuts and bolts and drivers ‐ I agree with Emily ‐ smaller homes. Maybe take a land bank community and dedicate it to smaller homes ‐ 10% of the cost of a house goes to fees ‐ All of the communities could get a better handle on this ‐ affordable housing piece is an issue for every ATTACHMENT 4 12 community nationwide ‐ we all need to take a look at fee waivers ‐ all of us are in the same boat in regards to what it costs to build a house. Mayor Troxell; under Longmont ‐ big utility gap ‐ counter to Fort Collins and Loveland ‐ they stand out and are part of Platt River Mike Beckstead; part of that is the favorability we have and the age of our infrastructure and our water rights ‐ Fees go up from $48K to $69K ‐ a 40‐45% increase because of the utility fees from the authorities not our utilities ‐ you are seeing that in a lot of the sister communities Emily Gorgol; will the outreach be done before working session? Jennifer Poznanovic: Yes Mayor Troxell; I think you are good to go for October Darin Atteberry; greater segmentation in the market would be good ‐ some of the Northern Colorado communities ‐ a lot of folks driving from / moving to ACTION ITEM: regarding the discrepancy that Ken pointed out between Utilities and Capital Expansion Fees on slide ‐ go forward but add a separate one pager providing more context for Council. It is an important question that others are going to be asking. This is Phase 3 of the 3 Phase approach that Council came up with ‐ I appreciate that we are back at this point and we are in the 3rd phase of ramping up ‐ it feels good that we took the time to do that Mike Beckstead; This will be the first time for cadence of 2‐year review cycle to be in place C. Potential New Revenue Discussion Mike Beckstead, CFO SUBJECT FOR DISCUSSION: 2019 Revenue Priorities EXECUTIVE SUMMARY Financial Services coordinates updates to existing council approved fees to provide council and the community a holistic understanding of the cost impact of these changes. Consistent with that focus, staff has assembled the current discussions occurring around needed revenue sources to facilitate a high‐level discussion of the organization’s revenue needs and priorities. GENERAL DIRECTION SOUGHT AND SPECIFIC QUESTIONS TO BE ANSWERED Does Council Finance Committee have any concerns with the revenue opportunities under discussion? Feedback and thoughts on prioritization? ATTACHMENT 4 13 DISCUSSION / NEXT STEPS: Mike Beckstead; What 2 or 3 revenue sources would be Council Priorities? What might a new fee be to support? Priorities? These would be new fees that would generate new revenue to accomplish something specific. Darin Atteberry; If Council says Transit is a priority – you either reprioritize to get more money there So that is a Budget for Outcomes conversation Transit Master Plan ‐ We are through Phase 2 of a 3 Phase plan We can either reprioritize existing money or create a new fee / revenue stream ‐ might be a redirection of resources or an additional tax. The prioritization conversation is always on the table. We have in our sights ‐ additional fees or tax ‐ candidly as a Council priority ‐ if you want to have a big impact on Transit, it will take some additional resources Some say between $8‐16M per year to have a measurable impact ‐ probably won’t find that in our existing budget Ken Summers; we need to take a more strategic and simplistic thinking in terms of our budget. Basically our sales tax revenue is not keeping up with inflation ‐ something of concern to me when I look at our financials – we are in good financial condition in terms of our reserves – my concern is when I look at the trend line of flat or declining revenue that is not keeping up with inflation and we have expenses are increasing as twice the inflation rate. The higher our taxes go, we basically encourage people to shop somewhere else. We might have to invest money in areas that are going to bring people to Fort Collins to stay, recreate, shop and dine. We can’t just look at it from taxing more or reallocating more resources – thus will require some real trade offs ‐ would have to be more stop doings Darin Atteberry; our hope – we are not just having one‐off conversations ‐ how we are translating the Council priority list. We know we will be doing work in this space as part of the next budget cycle. Fee to charge to increase supply of affordable housing in Fort Collins. At the time when a developer pulls their fees – they would be charged a new affordable housing impact fee which would help build affordable units ‐ not ATTACHMENT 4 14 necessarily a novel concept – there are many states and cities that are doing this but it would be new to Fort Collins. A couple years ago when we were doing the Foothills Mall study ‐ we chose not to move forward with it But it is certainly a tool that is Council chooses to put Policy or regulatory tool in place ‐ this is one way to do that. We have not made a recommendation whether or not this is the best tool. Mayor Troxell; Affordable from what perspective ‐ I would encourage a broader perspective. Darin Atteberry; I think we are talking more about affordable rather than attainable Jeff Mihelich; we have a Working Session coming on Affordable Housing – the whole strategy ‐ 80% of AMI – we can provide those options to Council Darin Atteberry; there is alot more to it ‐ Are we going to allow tiny homes? More affordable types of development? Increased density? All of those things need to be at play ‐ the context is much wider Mayor Troxell; water fees and other districts being more – that goes right to the purchase price of the house If we can moderate that ‐that is a $30K potential impact Jeff Mihelich; possibly bring land bank properties into the mix which could lower some of the fees – go more to cost of service ‐ tighten up fees ‐ a way to layer them all together and set up a matrix ‐ when to apply and when not to Darin Atteberry; can add $12 ‐ $30k per unit which equates to $90k over a 30‐year mortgage. That is why we are having conversations about fees right now. Emily Gorgol; in response to the prioritization question ‐ An Affordable Housing impact fee is part of the broader affordable and attainable issue ‐ I would prioritize that along with Transit and then parks Jeff Mihelich; that is in alignment with the Council Priorities D.2020 Budget Revision Review Lawrence Pollack, Budget Director SUBJECT FOR DISCUSSION: 2020 Budget Revision Recommendations EXECUTIVE SUMMARY The purpose of this agenda item is to familiarize and seek feedback from the Council Finance Committee on the City Manager’s recommended revisions to the 2020 Budget before the recommendations are reviewed and discussed at the Council Work Sessions scheduled for September 10th and 24th. Based on direction from Council, the 2020 Budget Revisions will be combined with the previously adopted 2019‐20 Biennial Budget. The 2020 Annual Budget Appropriation Ordinance is scheduled for 1st Reading on October 15 & 2nd Reading on November 5. GENERAL DIRECTION SOUGHT AND SPECIFIC QUESTIONS TO BE ANSWERED - What questions or feedback does the Council Finance Committee have on the City Manager’s recommended revisions to the 2020 Budget? ATTACHMENT 4 15 - Does the Council Finance Committee support moving forward with bringing the 2020 Budget Revisions to the full City Council for the September 10th work session? BACKGROUND/DISCUSSION OVERVIEW: The mid‐cycle Revision Process is different from the biennial Budgeting for Outcomes (BFO) process in that: 1) There is no broad request for new and innovative Offers. This is because we are operating within the approved 2019‐20 Biennial Budget and these revisions should be exceptions based on information not known at the time the budget was adopted in 2018 2) Likewise, there is no review by BFO Teams or request for public engagement. However, the Executive Leadership Team and City Manager conducted a comprehensive review to determine which requests should be forwarded on for Council's consideration. Revised revenue projections and available fund reserves were carefully considered when making these recommendations. The 2020 Budget Revisions include both 1) reductions to 2020 ongoing expenses to align them with a decreased 2020 Sales Tax forecast and 2) additional Offers for Council’s consideration based on information that wasn’t available at the time the 2019‐20 Budget was adopted. The following are key objectives which the 2020 Budget Revision recommendations are intended to address: • Matching appropriations for ongoing expenditures to current ongoing revenue estimates • Council priorities • Fiduciary responsibilities & fund balance requirements • High‐priority projects and other needs not known at the time of the adoption of the 2019‐20 Budget The recommended 2020 Budget Revisions meet these goals. Recommended revisions to the 2020 Budget must also meet one of the following criteria: • The request is specifically directed by the City Manager or City Council • The request is related to a previously approved Offer where either revenue shortfalls or unforeseen expenses are significantly impacting the delivery of that program or service On a related note, at the July 23, 2019 City Council work session on the Climate Action Plan update, some Councilmembers expressed interest in considering 2020 Midcycle Revision Offers to support progress on the CAP goals. At the work session, staff noted they are continuing to work on the 2018 community greenhouse gas inventory and forecast to 2020, in light of improved new vehicle composition data staff received in July. By the end of August, staff will be able to provide City Council with an update on the 2018 community carbon inventory and a forecast for the 2020 goal. The 2020 Mid‐cycle Revision Offers developed by staff and brought forward by the Budget Lead Team do not address specific CAP requests, in light of the limited scope of the midcycle revision process and cautious approach regarding future revenue projections. However, once the future greenhouse gas projections are clear, Council may request supplemental appropriations at any time during the rest of 2019 and throughout 2020 necessary to help achieve the City’s 2020 Climate Action Plan goals. ATTACHMENT 4 16 REVENUE: Overall, most significant City revenues are coming in at, or above, the 2019 budget except for Sales Tax. Although total revenue for 2019 is on track to support 2019 expenses, the 2019 Sales Tax base, upon which 2020 growth is calculated, is now expected to be lower than budget. Based on 2019 YTD sales tax growth of 1.8% and continued talk of a possible recession, the growth of 2020 Sales Tax is now conservatively being estimated at 1.5%, compared to 3.0% in the 2020 Budget. Thus, it is necessary for the City to reduce ongoing expenses in 2020 to align with the reduced forecast for 2020 Sales Tax revenue. The decreased forecast for Sales Tax revenue primarily impacts the General Fund and Keep Fort Collins Great (KFCG) Fund; but also impacts the funds associated with the three dedicated quarter‐cent sales tax initiatives (Street maintenance, Natural Areas and CCIP). The total reduction of anticipated revenue from Sales Tax in 2020 is about $1.8M, with the General Fund portion being just under $1.1M. ONGOING EXPENSE REDUCTIONS: There are a few different opportunities to align ongoing expenses to the reduced revenue projections. First, there was interest rate favorability associated with the debt offering for the Police Regional Training Facility and the I‐25/Prospect Interchange projects in the amount of $350k in the General Fund. Second, there is ongoing fuel and maintenance savings within Transfort which will reduce the contribution from the General Fund. Third, significant underspend and rising reserve balances in the Benefits Fund allows for the ongoing expense reduction to departments based on reduced contributions to the Benefits Fund. This third opportunity equates to just over $1.2M savings in the General Fund. Additionally, some funds had residual, unused ongoing revenue in 2020 that can be applied to offset expenses. Lastly, 2018 fund balances are available in some funds to offset one‐time expenses. These changes to revenue and available reserves are summarized in the table below. The Subtotal of Funding Changes line indicates that all Sales Tax shortfalls are covered and indicates the amount of funding available by fund for the 2020 Revision Requests. Summary of 2020 Revenue Changes and Available Reserves (values in $k) The reserves and revenue above are available to fund the recommended additions to the 2020 Budget. The table below summarizes those proposed additions and Attachment #1 contains the details of those recommended Offers. Description General Fund - Ongoing General Fund - 1-Time Capital Expan- sion KFCG CCIP Natural Areas Trans- porta- tion Storm- water Self Insur- ance Broad- band TOTAL Summary of Revenue Changes & Reserves - Reduced 2020 Sales Tax (ongoing) ($1,052) ($397) ($117) ($117) ($117) ($1,800) - Debt service favorability (ongoing) 350 350 - Fuel Savings (ongoing) 206 206 - Benefits Fund (ongoing) 1,244 1,244 - 17 Summary of 2020 Recommended Additions: 2020 Budget Revision Requests - BY FUNDING SOURCE Fund Revision Requested FTE Ongoing $ One-Time $ Total General Fund Developing Equity Gaps Analysis, Indicators, and Principles - - 120,000 120,000 East Mulberry Corridor Plan Update and Annexation Assessment - - 175,000 175,000 Park Improvement Project Support - - 50,000 50,000 Train Horn Noise - Federal Lobbying - - 42,000 42,000 Continued Voluntary Compliance Support for Outdoor Residential Wood Burning - 0.25 FTE 0.25 18,638 - 18,638 Chief Privacy Officer with Records Management Responsibility (start date of 1 Mar 2020) 1.00 93,750 17,962 111,712 Ongoing Agreements from 2018 Collective Bargaining 585,000 - 585,000 Sales Tax Technician - 1 FTE 1.00 50,585 - 50,585 Total General Fund 2.25 747,973 404,962 1,152,935 Capital Expansion New Block 32 Parking Structure Design - - 1,500,000 1,500,000 Fund Block 32 & 42 Plan Refresh - - 300,000 300,000 (General Government) Total Capital Expansion Fund - $0 $1,800,000 $1,800,000 Self Insurance Fund Security Specialist - 1.0 FTE (est. start date of 1 March 2020) 1.00 113,400 - 113,400 Total Self Insurance Fund 1.00 $113,400 $0 $113,400 Stormwater Fund Northeast College Corridor Outfall A4 (Lemay) Stormwater Lateral Design and Construction - - 959,500 959,500 Total Stormwater Fund - $0 $959,500 $959,500 Broadband Fund Income Qualified Connexion Credits 195,000 - 195,000 Total Broadband Fund - $195,000 $0 $195,000 TOTAL ALL FUNDS 3.25 1,056,373 3,164,462 4,220,835 ATTACHMENT 4 18 After netting out the proposed additions fund balances are still strong and well above minimum fund balance requirements. Summary of Available Reserves and Revenue after Recommended Additions (Values in $k) The 2020 Budget Revisions allow the City to align ongoing expenses with reduced revenue forecasts from Sales Tax. Conversely, the City is also able to fund a small number of additions to the 2020 Budget, which address Council priorities and other capital projects and design work that benefit our community DISCUSSION / NEXT STEPS: Mike Beckstead; We have a 3% growth rate 2019 / 2018 base assumption for last BFO – we grew stronger in 18 than we thought we would ‐ adjusted the 2019 YOY growth needed to meet budget to 1.7% . Challenge gets to this year we’ve only grown at 1.8% YTD ‐ is we took out one time events it goes down to 1.6%. We grew at 2.3 and 3.2 in 2017 and 2018 respectively. This is just sales tax – not use tax. Staff Recommendation to modify 2020 Sales Tax forecast from 3% to 1.5%. That lowers revenue by $1.8M Description General Fund - Ongoing General Fund - 1-Time Capital Expan- sion KFCG CCIP Natural Areas Trans- porta- tion Storm- water Self Insur- ance Broad- band TOTAL Available Revenue and Reserves 748 2,298 11,100 1,975 2,583 281 1,194 8,300 165 197 28,841 2020 Budget Revision Requests Ongoing Requests (748) (113) (195) (1,056) One-Time Requests (405) (1,800) (960) (3,165) Total of 2020 Revisions (748) (405) (1,800) 0000 (960) (113) (195) (4,221) Net Impact (positive = available) $0 $1,893 $9,300 $1,975 $2,583 $281 $1,194 $7,340 $52 $2 ATTACHMENT 4 19 $400K of that is in KFCG – rest from General Fund. Where do we make reductions of $1.8M? How we closed the gap; Darin Atteberry; medical claims ‐ you can have bad years and those numbers go crazy and vary. We do have Stop Loss insurance. The higher claims do effect out fund. Our approach to Wellness has been very effective. This is a particularly low year and that is always a good thing as we come to year end there could be something that could impact that. The overall benefits fund is $25M + and we watch that closely and we intentionally have drawn it down. ATTACHMENT 4 20 Reappropriations shown in red address Ken’s question Ross Cunniff; I assume new Council members know many of these funds are not mix and match Mike Beckstead; yes, the color of money will be covered in our Council on Boarding later this week Confirmed that there is a continency fund of $2.2M in case it is needed – inflation, etc. which we have not touched. Mayor Troxell; I am in support of where you are ‐ you have done a great job of delicately teasing out and putting togethe a proposal that makes sense. E. Epic Program – Long Term Financing Travis Storin, Director Accounting Sean Carpenter, Lead Specialist, Economic Sustainability SUBJECT FOR DISCUSSION: Epic Homes 15‐year Capital Options EXECUTIVE SUMMARY This item will provide an update to Council Finance regarding the Epic Homes 15‐year capital options and discussion of each. Topics include:  Review of capital recruitment process;  Importance of 15‐year capital in achieving desired program outcomes;  15‐year capital options;  Banking relationship with the national green bank; and  Interest rate swap background. GENERAL DIRECTION SOUGHT AND SPECIFIC QUESTIONS TO BE ANSWERED • Does the Committee support funding a 15‐year Epic Loan option? • Which 15‐year capital option does the Committee support? • Does the Committee support staff analysis of the debt policy and the exception request if the variable‐rate, collateralized option is desired? BACKGROUND/DISCUSSION Fort Collins’ innovative Epic Homes portfolio supports several community and City Council priorities, including ambitious goals around energy efficiency and renewables, reduced greenhouse gas emissions and increased equity and wellbeing of all residents. Meeting these objectives will require, among other activities, greater numbers of property owners to undertake comprehensive efficiency improvements in the coming years, particularly for older, less‐efficient rental properties which make up a large percentage of the City’s housing stock. An ongoing and attractive financing structure to support energy efficiency retrofits will be a critical element for success moving forward. On‐Bill Financing (OBF) 1.0 (also known as the Home Efficiency Loan Program or HELP) operated successfully from 2013 through 2016 when the encumbered funds reached the maximum outstanding loan balance of $1.6M. At that time, Elevations Credit Union was selected through an RFP process to continue HELP for energy ATTACHMENT 4 21 loan financing. Utilities staff qualify the efficiency project based on the rebate measures in the Efficiency Works Home program; however, the loan origination and servicing are independent of Utilities programs. With the implementation of Epic Loans, Elevations loans will continue to be an option for interested customers. Epic Loans began in August 2018 during the Champions Phase of the Bloomberg Mayors Challenge, using the $100,000 award from the Champions Phase and a $200,000 grant from the Colorado Energy Office (CEO) to revitalize on‐bill financing. Fort Collins is among nine winning cities for the Mayors Challenge, each receiving $1M to implement their winning idea. Leveraging external capital is critical to achieving the long‐term “revolving loan” vision of Epic Loans and offers a continuing source of funds to meet increasing customer demand for energy efficiency financing. Epic Loans is designed to balance the programmatic objectives and financial requirements of the City, while also meeting the needs and expectations of capital providers and Utilities customers. Council Finance Meetings Review Staff presented to Council Finance in November 2018 regarding the program background and issuing an RFP for third‐party capital sources. The City issued RFP #8842 in December 2018 and staff pursued conversations and negotiations with respondents and other potential capital providers. Staff presented to Council Finance in May 2019 regarding the potential capital sources and next steps for bringing capital agreements to Council. Staff have continued negotiations with potential capital providers (including a locally managed national bank, a regional bank, Colorado Clean Energy Fund, and the CEO) and received Legal and Purchasing review of draft contracts. Staff presented to Council Finance in July 2019 regarding capital agreement terms. Staff was directed to bring two of the three capital sources to full Council for consideration. Staff was also directed to explore 15‐year capital options and provide additional information on interest rate swaps to Council Finance. Importance of 15‐year Capital During prototyping for the Bloomberg Mayors Challenge competition, rental property owners reported that no money down, affordable monthly payments are critical considerations, in particular for owners with multiple units. OBF 1.0 proved these factors are also important for owner‐occupied properties, where many homeowners preferred longer term loans which often allow for more comprehensive projects and /or solar installations with affordable monthly payments. In 2016, Fort Collins Utilities implemented the Efficiency Works Neighborhood pilot, with nearly 60 long term loans issued totaling over $750,000. An additional $1.5M in 15‐year capital for Epic Loans would support approximately120 similar projects. Throughout the program history (2013‐2019, including Elevations Credit Union loans), 35% of customers have used longer loan terms to reduce monthly payments and / or undertake more comprehensive energy efficiency projects. As a result, the longer‐termed loans account for a larger percentage of the total loan portfolio value, at 45%. When looking specifically at on‐bill financed loans (2013‐2016 and 2018‐2019), nearly 50% of customers have used longer term loans (Table 1), accounting for approximately 60% of the on‐bill financed loan portfolio value. In short, longer term loans are generally used for bigger, more comprehensive projects that can generate increased benefits for the people who live in and / or own those homes, as well as positively impacting overall City goals. ATTACHMENT 4 22 Table 1. Summary of On‐Bill Financed Projects by Loan Term 3‐ & 5‐year loans 7‐ & 10‐year loans 15 (& 20) year loans Projects 38 65 95 Percentage 19% 33% 48% In order to keep monthly payments low and make energy retrofit projects attractive, longer loan terms are required. With a 15‐year loan at the average long‐term loan amount of $13,000, monthly payments are $101. These attractive monthly payments are critical for overcoming both upfront cost and continual cost barriers for home and rental property owners considering energy upgrades. 15‐year Capital Options Per Council Finance request, staff has identified the following four options for 15‐year capital: 1. Pursue an agreement with the national green bank for up to $2.5M with the required 50% deposit and use an interest rate swap to stabilize variable rates (This is the staff recommendation.) 2. Use L&P Reserves to fund $1.5M, in addition to the current $1.6M that is currently deployed or has been repaid 3. Use only the 15‐year funding available from CEO, Bloomberg, and repaid L&P Reserves 4. Implement a hybrid of Options 2 and 3, using L&P Reserves to provide backfill demand once other Option 3 sources are exhausted To provide sufficient financing for the expected number of projects, the short‐term (3‐4 year) capital goal is $7M to $8M. This assumes $1.5M to $2M annually in energy efficiency project financing. As staff has outlined, sufficient 15‐year capital is critical to the success of the overall program. Option 1: National Green Bank Staff has been in discussions with a national green bank to negotiate 15‐year loan terms, which were presented and discussed at the July 15, 2019 Council Finance meeting. The terms include: • Amount: Up to $2,500,000 (staff expects to only draw $1,500,000) • Length: 15‐years inclusive of draw period • Draw period: Up to 2 years with quarterly draws based on customer loans • Variable rate: Wall Street Journal Prime + 0.25% (currently 5.50%) • Collateral: City will deposit 50% of drawn amount into interest bearing account from L&P Reserves (staff expects $750,000 deposit) • Pre‐pay: City may pre‐pay in whole or in part at any time and without penalty • Repayment position: Senior pledge on customer loan repayments and second position on Electric Utility revenues, after the more senior pledge held by revenue bondholders Banking Relationship Staff issued RFP #8842 in December 2018, to which the Colorado Green Energy Fund was one of two respondents. The Colorado Green Energy Fund has found and managed the relationship with a financier willing to provide 15‐year terms (Figure 1). If this option is selected, Fort Collins Utilities would borrow from the Colorado Green Energy Fund. ATTACHMENT 4 23 Figure 1. Banking Relationship with the Colorado Green Energy Fund and Commercial Bank Policy Interactions This Option has two interactions with Financial Policy #7 ‐ Debt. The first interaction is the required 50% collateral, or credit enhancement. Staff assesses an appropriate use of a credit enhancement via the collateral pledge. The second interaction is the variable rate and/or derivative swap instrument. The proposed lender is offering a variable interest rate for the loan duration. Staff has attempted to negotiate rate lock‐in rights during the draw period, but the lender has been unable to flex. An alternative is to use an interest rate swap, which would qualify as a derivative instrument and is covered by policy as an instrument the City should avoid. Staff assesses a “plain vanilla” interest swap is a feasible solution, although it carries a cost premium, but it would effectively “lock in” a fixed rate on the 15‐year note if City is unwilling to accept variable rate risk. Interest Rate Swap Interest rate swaps are a common financial instrument, used by a wide variety of businesses to manage their debt service payments in a manner that best suits their organizational needs. For some entities, variable rates are preferred; for others, fixed rate obligations are best. In this option, the City would negotiate with another party (who prefers a variable rate interest obligation) and the City would exchange the variable rate obligation under the proposed loan with the national green bank (Option 1) for the swap party’s fixed rate instrument (Figure 2), using well established markets / providers for these types of financial transactions. The swap would be based on the notional principal, and only the netted difference between fixed and variable interest rate amounts is paid. The interest swap party would also agree to a settlement cadence. Figure 2. Example of Cash Flows of Interest Rate Swap •Midwest Commercial Bank providing 15‐ year capital Financier •Colorado Green Energy Fund managing relationship and finding financiers (RFP respondent) Broker •Fort Collins Utilities borrowing from green bank and issuing loans to customers Fort Collins ATTACHMENT 4 24 Option 2: Light & Power Reserves Currently, $1.6M of L&P Reserves have been deployed for on‐bill financing since 2013, of which nearly $400,000 have been repaid without any losses to date. Option 2 would dedicate an additional $1.5M of L&P Reserves for 15‐year loans. Available Reserves at the end of 2018 were $8.4M. Anticipated 2019‐20 budget changes include a 2019 drawdown on Reserves by $340K and a 2020 increase on Reserves by $320K. The Capital Improvement Plan will be updated in Fall 2019, prior to updating the Strategic Financial Plans for a November 2019 presentation to Council Finance. There is no anticipated need to increase electric rates for a one‐time $1.5M appropriation of Reserves. However, appropriating L&P Reserves for use in Epic Loans will make those funds unavailable for use in other future capital projects, until such time that those funds are repaid by Epic Loan customers. Option 3: 15‐year Funding from Grants and Low‐Cost Capital Only There are currently other sources of limited 15‐year capital, which include:  Up to $1M low‐cost loan from CEO dedicated to 15‐year projects (to be presented to Council on September 3, 2019)  Re‐allocation of up to $900K from Bloomberg and CEO grant funds, away from 5‐year and 10‐year projects Without external or Reserve financing, the full capital stack across all product offerings will support approximately 130 fewer home upgrades for each “cycle” of the loan portfolio (e.g. each time the capital is lent, repaid and therefore available to be re‐loaned), or approximately 370 projects versus an estimated 500 projects. In this Option, the capital burn rate would be 1 to 1.5 years faster. Option 4: Hybrid of Options 2 & 3 Using L&P Reserves After Other Sources Exhausted A final Option is to use the 15‐year capital sources outlined in Option 3 above and use L&P Reserves once all other sources have been exhausted. 15‐year Capital Option Analysis Staff analysis of the benefits and challenges for each Option is outlined in Table 2. If supported by Council Finance, staff recommends bringing Option 1 to full Council for consideration on October 1, 2019. Table 2. Analysis of 15‐year Capital Options ATTACHMENT 4 25 Option Benefits Challenges Option 1: National Green Bank (staff recommendation)  Provides sufficient funding for expected 15‐year projects  Scalable for the long‐term, and replicable for other cities  Only market capital provider willing to provide 15‐year terms, all other market capital providers will not go over 10‐year terms  Requires a 50% deposit into an interest‐bearing account from L&P Reserves  Requires a policy exception to use an interest rate swap  Contingent on other low‐cost capital sources to provide an attractive rate for customers Option 2: Light & Power Reserves  Provides easy access to low‐cost capital  Impacts the opportunity costs of other important Utilities needs  Not scalable for long‐term, or replicable for other cities Option 3: 15‐year Funding from Grants and Low‐ Cost Capital Only  No additional capital agreements needed (after CEO loan presented to full Council)  Does not provide sufficient funding for expected 15‐year projects  Not scalable for long‐term  Removes low‐cost capital from 5‐year and 10‐year loans for blending to create attractive customer rates Option 4: Hybrid of Options 2 & 3 Using L&P Reserves After Other Sources Exhausted  No additional capital agreements needed (after CEO loan presented to full Council)  Not scalable for long‐term, or replicable for other cities  Removes low‐cost capital from 5‐year and 10‐year loans for blending to create attractive customer rates  Impacts the opportunity costs of other important Utilities needs Next Steps 26 Travis Storin; credibility of the institution ‐ that is a key element as we go shop for this Will have to be one of the large multi‐national banks we are targeting to take on this risk. They do have the risk of defaulting ‐ it is a possibility and deliberate vendor selection is our mitigating measure. Ross Cunniff; if the economy tanked, we could decide to not engage or draw the full amount, right? Travis Storin; yes, the notional amount is going to be whatever we have drawn ‐ we will have a draw period on the facility and only swap the amount we have drawn not the full amount ‐ Ross Cunniff; still some risk ‐ the advantage to program and to businesses that cannot make the cash flow work Are powerful to me along with the ability to make this a sustainable proposition. My concern is I would not want to make this a standing change to policy ‐ I would want to make it a case by case basis – so would need to be very narrowly tailored for this circumstance ‐ vitally important program. I am supportive of moving forward ‐ we need to be careful sending the message – I don’t want us to be used as part of a portfolio This is really a special case ‐ Fort Collins is not going to be a variable interest player ‐ bigger picture policy perspective Mike Beckstead; staff is very much aligned with that ‐ This is an exception specific to version 3.0. If we find this works and would want to do it again ‐ we would need to come back to Council and share our experience for 4.0 ‐ we view this is a one‐time event as well. Mayor Troxell; I would agree ‐ let’s keep it as a one‐time exception Option 1 with the National Green Bank is my preference. Question – with the interest rate swap how does the deposit play into that? Travis Storin; the deposit scales with what we draw at a rate of 50% ‐ according to policy we are only to do this when we run an NPV and this is still beneficial to City of Fort Collins. In this case there is really not an NPV to run ‐ more a deal or no deal – we are working with Lance Smith and we have determined that it is up to $750K earmark on reserves which would go into an interest bearing account ‐ Comparable rates to a money market ‐ when we prepay or it matures, we would get those funds back Sean Carpenter; The max loan amount would be $25K ‐ we have not issued any loans that large to date The average loan amount is currently $14K so we anticipate $10‐14K will be the range for the vast amount of these projects over 5, 10 or 15‐year terms Mike Beckstead: the consumer chooses the term based on the value of the energy efficiency they want to put into their properties – the savings from the improvements are hard to realize over a shorter term ‐ which impacts their cashflow Ken Summers: how many loans are we anticipating? Travis Storin; our peak year was 2016 where we did 110 loans Ken Summers; what happens if they default? Concerned about someone needing to borrow that amount over such a long term ATTACHMENT 4 27 Mike Beckstead; we would have a lien on the house but our experience to date in the 4‐5 years of this program is that we have not had a single delinquent loan ‐ part of that is the nature of what people are borrowing for – they know with the lien in place that if they do sell we will get our piece. Darin Atteberry; projects like new windows, furnaces, major capital equipment Ross Cunniff; we are targeting certain types of projects that typically pay back similar or higher value on their energy bill to what they are paying ‐ that is probably also why you would want to get the monthly cost down. Travis Storin; one of our iterations was a strictly 3rd party bank that they would go to as a qualified borrower – with much the same amount of rigor as a mortgage – not serviced on the bill so the protections were different – the demand for that product has been pretty limited ‐ people like being able to pay it on their utility bill the on‐ bill portion is a positive. Ken Summers; we are talking about modifying policy and additional risk – I am concerned on the trade‐off standpoint Mike Beckstead; might be helpful is we zoom out to 10K feet and provide some context ‐ we started this program in 1012 using $800K from L&P reserves as the funding source for the loans and in 2014 Council approved another $800K for additional loans ‐revolving. Currently there is $1.8M in reserves available for these loans ‐ we can’t continue to use that funding methodology and make the volume of energy efficiency changes we want to make in our community so we turned to how to use 3rd party capital ‐ we went to version 2.0 with a local credit union but when we did that the number of loans tanked dramatically. Now we are at version 3.0 where we are trying to figure out how to get a competitive capital stack across 3 different terms providing home energy efficiencies that would not happen without this type of financing ‐ a little bit of history on how we came to this point. Our goal has been to figure out how we can use 3rd party capital as opposed to using our own capital which comes with some risk. Travis Storin; This is one component of the greater energy works portfolio ‐ of the energy efficiency improvements that are made ‐ loans account for 25% of the expenditure and 15‐year loans count for 50% of loans and for 60% of the dollars 80% of those who used 10‐15 year terms and on‐bill financing said that they would not have done it without the 10 or 15 year terms. Mayor Troxell; this is a model ‐ some other municipalities are looking to us ‐ Sean Carpenter; that is right ‐ some of the support we are not talking about today includes the $200K grant we received from the Colorado Energy Office – in the hopes that we can create a ‘cookbook’ to help other communities replicate this in Colorado and elsewhere. Travis Storin; the low cost capital is a critical success factor‐ for every loan 2/3 of the loan amount comes from a market driven source Mike Beckstead; To summarize, there are some questions and concerns, some things in the AIS that we will want to clarify. But I believe we have the direction to bring this forward to Council on October 1st ATTACHMENT 4 28 Ken Summers; to do 15 years – we will need to make a policy exception and take on more risk I am trying to get a handle on year 11‐15 – as opposed to years 1‐10 and the impact Mike Beckstead; the consumer is making the choice – we are just providing the alternatives to match the savings of the investment, the energy efficiency benefits and their cashflow Meeting adjourned at 11:56 am ATTACHMENT 4 Economic Health Office 300 LaPorte Avenue PO Box 580 Fort Collins, CO 80522 970.221.6505 970.224.6107 - fax fcgov.com MEMORANDUM DATE: July 24, 2019 TO: Mayor and Councilmembers CC: Darin Atteberry, City Manager; Jeff Mihelich, Deputy City Manager; Jacqueline Kozak-Thiel, Chief Sustainability Officer Josh Birks, Economic Health and Redevelopment Director FROM: Denichiro “Denny” Otsuga, Chair – Economic Advisory Commission; Connor Barry, Vice-Chair – Economic Advisory Commission; and Members, Economic Advisory Commission for 2019 RE: 2019 CAPITAL EXPANSION FEE UPDATE On July 17, the Economic Advisory Commission (EAC) received a presentation from Jennifer Poznanovic, and Randy Reuscher, on the current progress of the 2019 Capital Expansion and Utilities Fee Review and update. The purpose of this memorandum is to support currently proposed fee review and suggest methodologies for systematizing future fee review. Summary of Discussion: The Commission and its members noted the following: • Proposed fees appear to be in line with surrounding cities and that fees as a percentage of median home sales price seem reasonable methodology. - The Commission noted home size classification used should be updated in the future. • Noted the Water Supply Requirement charge of ~24% was an outlier among the other fee adjustments. - The Commission questioned whether the CPI for the Denver-Aurora-Lakewood was suitable and if other measures should be considered in order to smooth any future adjustments. • The changes required for funding continued park maintenance should be given a degree of priority in future updates. The staff responded that such consideration was outside the scope of this study. The Council is aware of the matter, and the changes are being considered for future studies. • The presenters stated that addressing infrastructure need to meet the peak demand continues to be an important factor, of the fee review and for utilities in particular. - The staff responded that the current primary mechanism for addressing user behavior is education while possible technological solutions or incentive structures have not been rigorously explored. - The Commission believes that investigating the role of technology or incentives would be meaningful. An incentive program could encourage adoption of more efficient technologies during the design/construction stage or induce to participate in conservation practices by offering specific rewards for adopting desired use behaviors (installing xeriscaping instead of turf, for example). - The Commissions encourages staff to incorporate a study of technological or incentive solutions as part of future fee reviews. ATTACHMENT 5 ATTACHMENT 6 ATTACHMENT 6 Customer Communication – Excess Water Use Surcharges As outlined in the July 8 memo, staff communicated with existing non-residential customers who would be affected by the 2020 increase in Excess Water Use (EWU) surcharges. Communication included an online survey, customer letters, phone calls, public open houses and events and one-on-one consulting with customers. Throughout the communication process, staff has continued to support existing customers affected by the increase to find the best solutions for each customer. Details of staff communication with existing non-residential customers with water allotments include: • Created an online form for customers to provide written comment. • Notified potentially impacted customers of the 2020 increase and opportunity to provide comment (letters to approximately 350 customers, emails to 130 customers, July 2019; letters to approximately 1,100 customers with allotments who have historically not exceeded their allotment, scheduled to mail October 18). o Communicated with customers with the highest potential EWU surcharges via direct phone calls (July – August 2019). • Hosted two public open houses to inform customers of supporting resources to mitigate impact such as the Allotment Management Program (AMP), Ordinance No. 050,2019, and the Xeriscape Incentive Program (XIP) for HOAs and commercial properties (June 24 and October 4). • Hosted a public open house to launch AMP (July 9). Presented on AMP and XIP at the annual Luncheon for Multifamily Owners and Property Managers (October 11) o Events were advertised through postcards, emails, social media and a newsletter. • During 2019, staff has worked with approximately 85 customers to evaluate their water use and make recommendations. Staff received the following feedback from customers: • Increase is costly for existing customers and program support is needed to mitigate impacts. • Many customers who exceed their allotment have requested allotment aggregation as outlined in the October 1 memo regarding HOA Water Concerns and Landscape Transitions. Staff continues to work with existing customers to address their feedback and concerns and support them through various programs like AMP/XIP. A follow-up letter will be mailed to customers based on Council’s decision regarding the proposed increase to EWU surcharges. Additionally, staff is continuing to evaluate the aggregation of allotments and will report back to City Council with recommendations first quarter of 2020. Some of these topics also may arise in the February 25 City Council Work Session on the topic of “Land/Water Nexus – Building a Resilient Community Landscape.” ATTACHMENT 7 Utilities electric · stormwater · wastewater · water 222 Laporte Ave. PO Box 580 Fort Collins, CO 80522-0580 970.212.2900 V/TDD: 711 utilities@fcgov.com fcgov.com/utilities M E M O R A N D U M DATE: July 8, 2019 TO: Mayor Troxell and Councilmembers FROM: Lisa Rosintoski, Utilities Deputy Director, Customer Connections THROUGH: Darin Atteberry, City Manager Jeff Mihelich, Deputy City Manager Kevin R. Gertig, Utilities Executive Director RE: Information and outreach plan regarding proposed increase to Excess Water Use surcharges scheduled for 2020 Bottom Line: City Council may receive comments from current Utilities commercial water customers who will be impacted by a proposed increase (24%) to the Excess Water Use surcharge. Customers expressed significant concerns over the last increase (166%, effective January 1, 2018) and some reached out to Councilmembers. This memo provides background on the Excess Water Use surcharge and details about the outreach effort to inform affected customers earlier and provide resources (e.g., the new Allotment Management Program) to mitigate impacts. Staff will share results with Council in fall 2019 (currently slated for October 8 work session). Key Terms: • Non-residential Water Supply Requirement (WSR): Developers must provide water supplies to meet the demands of a new development and to ensure a reliable source of supply in dry years. The WSR methodology is generally reviewed every 5-7 years. • Non-residential: All commercial, industrial, public entity, group housing, nursing homes, fraternities, hotels, motels, commonly owned areas, club houses and pools; includes HOA common spaces and irrigation accounts. • Cash-in-lieu (CIL): A developer may pay cash instead of satisfying the WSR through water rights. Existing customers may pay the CIL rate to increase their allotment. CIL is based on the cost to develop additional water resources and is reviewed every two years. • Allotment: Annual volume of water associated with a given tap (only taps installed after 1984). This volume is often associated with the WSR satisfied at the time of development, but a customer may increase their allotment at any time. • Excess Water Use (EWU) surcharge: A volumetric charge assessed on all water used through the remainder of the calendar year once a customer has exceeded their annual allotment (in addition to the applicable regular utility rates). This surcharge is tied to the CIL rate. Revenue from the EWU surcharge goes toward acquiring, developing and improving Utilities’ water supplies to address the impact of customers exceeding planned water demands. ATTACHMENT 7 Page 2 of 3 History: Utilities requires new development to provide water supplies to meet the demands of the new development. Prior to 1984, these new accounts were not assigned an allotment. Beginning in 1984, Fort Collins Utilities started assigning new non-residential water taps an annual allotment based on the volume of the Water Supply Requirement (WSR). About 1,200 (34%) of non-residential water customers have an allotment. In any given year, around 300 (10%) of non-residential taps exceed their allotment. Customers typically exceed because: 1. They are using water inefficiently. 2. There has been a change in business type (e.g., gas station turns into a restaurant). 3. The allotment is too small for the property’s water need. City Council approved significant modifications to the WSR (effective January 1, 2018), which increased the CIL rate from $6,500 to $17,300, and the EWU surcharge from $3.06 per 1,000 gallons to $8.14 per 1,000 gallons in excess of the allotment. Some customers faced up to $40,000 in EWU surcharges in 2018, with over half paying at least $4,000 and 30 paying over $10,000 annually. Over 1,200 staff-hours were spent addressing customer concerns in 2018. The primary customer concerns were: 1. In specific situations, customers could not mitigate impacts without costly solutions. 2. Dramatic cost increase (166%). 3. Not enough time to prepare for change, water efficiency projects or to factor into annual budgeting. Customer Resources: Staff developed the Landscape Water Budget program, an allotment notification service, expanded the leak notification service, and worked to get allotment information and use-to-date on the new Utilities bill after the new Customer Information System is implemented. Learn more at fcgov.com/commercial-irrigation. Staff created the Allotment Management Program (AMP), Ordinance No. 050, 2019, to address Concern 1 above. AMP supports customers whose allotments are too small for the water needs of the landscape. The program provides qualified applicants a temporary waiver from the EWU surcharges while they implement a landscape project to permanently reduce water use. Customers can redirect money that would have been spent on EWU surcharges into a project that will help to minimize or even avoid surcharges in the future. Learn more at fcgov.com/AMP. The AMP application period launches in July 2019, and the first waiver will be made available to customers implementing projects in 2020. AMP will help some, but not all, customers that may be affected by the proposed 2020 EWU surcharge increase. ATTACHMENT 7 Page 3 of 3 2019 Outreach Plan: In response to Concerns 2 and 3, staff has developed an outreach plan to inform and support customers that may be affected by the increase in 2020. • Create an online form for customers to provide written comment. • Notify potentially impacted customers of the 2020 increase and opportunity to provide comment (letters to approximately 350 customers, emails to 130 customers, July 2019). o Reach out to customers with the highest potential EWU surcharges via direct phone calls (July – August 2019). • Public open house to launch the Allotment Management Program (July 9). o Event advertised through postcards, emails and a newsletter. • Follow-up informational event about AMP and other water efficiency programs and services (September or October 2019). As always, staff continues to support customers with strong customer service and connects customers to the options that work best for them. In addition to these outreach efforts, Utilities Finance is conducting outreach to developers impacted by the related CIL increase. Information about this was presented to the Council Finance Committee on July 17. CC: Lance Smith, Utilities Strategic Finance Director Carol Webb, Utilities Deputy Director, Water Resources and Treatment Operations Donnie Dustin, Water Resources Manager Liesel Hans, Water Conservation Manager Mark Cassalia, Customer Accounts Manager ATTACHMENT 7 Utilities electric · stormwater · wastewater · water 700 Wood Street PO Box 580 Fort Collins, CO 80522 970.221.6700 970.221.6619 – fax 970.224.6003 – TDD utilities@fcgov.com fcgov.com/utilities M E M O R A N D U M DATE: October 1, 2019 TO: Mayor and City Councilmembers FROM: Carol Webb, Utilities Deputy Director THROUGH: Darin Atteberry, City Manager Jeff Mihelich, Deputy City Manager Kevin R. Gertig, Utilities Executive Director RE: Leadership Planning Team Follow-Up – HOA Water Concerns and Landscape Transitions This memo is in response to questions from the September 30 Leadership Planning Team (LPT) meeting regarding: 1) HOA water concerns and a suggestion that HOA water allotments be aggregated to help avoid exceeding water allotments, and 2) a need for a transition plan for landscaping as things move from bluegrass to xeriscapes and/or alternative landscapes. Questions posed at LPT and staff responses are below. 1. HOA water concerns and aggregating water allotments City staff is currently evaluating Utilities practices related to aggregating water allotments and determining the potential benefits and challenges of doing so for both the Utilities and its customers. While aggregating allotments may be reasonable in certain circumstances and may help certain customers avoid excess water use fees, several challenges have been identified that warrant further evaluation by staff. Challenges identified to date include:  ensuring that aggregating water allotments aligns with current City Code;  ensuring that aggregating and separating water allotments do not allow allotments to be moved from one property to another;  determining if water efficiency would be negatively impacted; and,  whether Utilities billing and financial systems would support aggregating allotments in an automated manner. Staff will continue its evaluation in the coming months and report back to City Council with any recommendations. DocuSign Envelope ID: 9018911A-E926-424E-9C23-F3C5D987CC74 ATTACHMENT 7 2 2. A need for a transition plan for landscaping as things move from bluegrass to xeriscapes and/or alternative landscapes Staff is currently scheduled to present at the February 25 City Council Work Session on the topic, “Land/Water Nexus – Building a Resilient Community Landscape”. The scope of this presentation will include a discussion of managing transitions to more resilient, sustainable community landscapes. DocuSign Envelope ID: 9018911A-E926-424E-9C23-F3C5D987CC74 ATTACHMENT 7 -1- ORDINANCE NO. 130, 2019 OF THE COUNCIL OF THE CITY OF FORT COLLINS AMENDING CHAPTER 7.5 OF THE CODE OF THE CITY OF FORT COLLINS TO IMPLEMENT THE PHASE III INCREASES FOR THE CAPITAL EXPANSION FEES AND INCREASE FOR INFLATION THE CAPITAL EXPANSION FEES AND THE TRANSPORTATION EXPANSION FEE WHEREAS, the City is a home rule municipality having the full right of self-government in local and municipal matters under the provisions of Article XX, Section 6 of the Colorado Constitution; and WHEREAS, among the City’s home rule powers is the power to regulate, as a matter of purely local and municipal concern, the development of real property within the City and establish impact fees for such development; and WHEREAS, the City Council has determined that new development should contribute its proportionate share of providing the capital improvements that are typically funded with impact fees; and WHEREAS, the City Council has broad legislative discretion in determining the appropriate funding mechanisms for financing the construction of public facilities in the City; and WHEREAS, in early 2016, City staff initiated a comprehensive review of its various impact fees now charged to new development, including its community parkland, neighborhood parkland, police, fire protection and general government capital expansion fees (collectively, “Capital Expansion Fees”), and the City’s street oversizing capital improvement expansion fee, now called the transportation expansion fee (“TEF”); and WHEREAS, as a result of that review, the City commissioned an impact fee study for the Capital Expansion Fees that has resulted in the “Capital Expansion Fee Study” dated August 2016 (the “CEF Study”), which has identified the need to increase such Capital Expansion Fees by various amounts; and WHEREAS, the City also commissioned an impact fee study for the TEF that has resulted in the “Transportation Capital Expansion Fee Study” dated April 2017 (the “TEF Study”), which has also identified the need to increase and decrease the TEF by various amounts depending on the type of development proposed; and WHEREAS, City Code Section 7.5-18 provides that the Capital Expansion Fees and the TEF shall also be increased or decreased annually for inflation; and WHEREAS, in 2017, City Council adopted Ordinance No. 049, 2017, implementing, beginning on October 1, 2017, the Phase I increases of the Capital Expansion Fees to 75% of the increased amounts recommended in the CEF Study and of the TEF to 80% of the increased -2- amounts recommended in the TEF Study, but fully implementing the recommended reductions to the TEF; and WHEREAS, in 2018, City Council adopted Ordinance No. 166, 2018, implementing, beginning on January 1, 2019, the Phase II increases of the Capital Expansion Fees to 90% of amounts recommended in the CEF Study, plus inflation, and of the TEF to 100% of the amounts recommended in the TEF Study, plus inflation; and WHEREAS, based on the CEF Study and the general approach and direction of City Council, including the Council Finance Committee, this Ordinance enacts Phase III of the increases to the Capital Expansion Fees; and WHEREAS, this Ordinance increases the Capital Expansion Fees to 100% of the amounts recommended in the CEF Study, plus inflation, beginning on January 1, 2020; and WHEREAS, this Ordinance also increases the TEF, but for inflation only; and WHEREAS, for the foregoing reasons, the City Council has determined that it is in the best interest of the City and its citizens and necessary for the protection of the public’s health, safety and welfare, that the Capital Expansion Fees and the TEF be increased as hereafter provided. NOW, THEREFORE, BE IT ORDAINED BY THE COUNCIL OF THE CITY OF FORT COLLINS as follows: Section 1. That the City Council hereby makes and adopts the determinations and findings contained in the recitals set forth above. Section 2. That Section 7.5-28(a) of the Code of the City of Fort Collins is hereby amended to read as follows: Sec. 7.5-28. - Community parkland capital expansion fee. (a) There is hereby established a community parkland capital expansion fee which shall be imposed pursuant to the provisions of this Article for the purpose of funding capital improvements related to the provision of community parks, as such improvements may be identified in the capital improvements plan for community parkland. Such fee shall be payable prior to the issuance of any building permit for a residential structure. The amount of such fee shall be determined per dwelling unit as follows: Current2019 As of October 1, 2017 As of January 1, 20192020 Resid., up to 700 sq. ft. $1,102.00 $2,326.00 $1,751.00 $2,326.00 $2,619.00 Resid., 701 to 1,200 sq. ft. 1,414.00 3,114.00 2,432.00 3,114.00 3,506.00 -3- Resid., 1,201 to 1,700 sq. ft. 1,562.00 3,400.00 2,558.00 3,400.00 3,828.00 Resid., 1,701 to 2,200 sq. ft. 1,628.00 3,436.00 2,585.00 3,436.00 3,868.00 Resid., over 2,201 sq. ft. 1,743.00 3,830.00 2,881.00 3,830.00 4,312.00 In the case of duplexes and multi-family structures, the amount of the fee for each dwelling unit shall be based upon the average size of the dwelling units contained within each such structure. Section 3. That Section 7.5-29(a) of the Code of the City of Fort Collins is hereby amended to read as follows: Sec. 7.5-29. - Police capital expansion fee. (a) There is hereby established a police capital expansion fee which shall be imposed pursuant to the provisions of this Article for the purpose of funding capital improvements related to the provision of police services, as such improvements may be identified in the capital improvements plan for police services. Such fee shall be payable prior to the issuance of any building permit for a residential, commercial or industrial structure. The amount of such fee shall be determined as follows: Current2019 As of October 1, 2017 As of January 1, 20192020 Resid., up to 700 sq. ft. $141.00 $226.00 $177.00 $226.00 $254.00 Resid., 701 to 1,200 sq. ft. 178.00 305.00 239.00 305.00 344.00 Resid., 1,201 to 1,700 sq. ft. 198.00 332.00 260.00 332.00 374.00 Resid., 1,701 to 2,200 sq. ft. 206.00 337.00 264.00 337.00 379.00 Resid., over 2,200 sq. ft. 220.00 375.00 294.00 375.00 423.00 Commercial buildings (per 1,000 sq. ft.) 169.00 -4- Section 4. That Section 7.5-30(a) of the Code of the City of Fort Collins is hereby amended to read as follows: Sec. 7.5-30. - Fire protection capital expansion fee. (a) There is hereby established a fire protection capital expansion fee which shall be imposed pursuant to the provisions of this Article for the purpose of funding capital improvements related to the provision of fire services, as such improvements may be identified in the capital improvements plan for fire protection services. Such fee shall be payable prior to the issuance of any building permit for a residential, commercial or industrial structure. The amount of such fee shall be determined as follows: Current2019 As of October 1, 2017 As of January 1, 20192020 Resid., up to 700 sq. ft. $281.00 $403.00 $316.00 $403.00 $454.00 Resid., 701 to 1,200 sq. ft. 357.00 546.00 428.00 546.00 614.00 Resid., 1,201 to 1,700 sq. ft. 395.00 593.00 465.00 593.00 668.00 Resid., 1,701 to 2,200 sq. ft. 410.00 603.00 473.00 603.00 679.00 Resid., over 2,200 sq. ft. 440.00 671.00 526.00 671.00 756.00 Commercial buildings (per 1,000 sq. ft.) 339.00 508.00 395.00 508.00 572.00 Industrial buildings (per 1,000 sq. ft.) 80.00 119.00 93.00 119.00 134.00 In the case of duplexes and multi-family structures, the amount of the fee for each dwelling unit shall be based upon the average size of the dwelling units contained within each such structure. Section 5. That Section 7.5-31(a) of the Code of the City of Fort Collins is hereby amended to read as follows: Sec. 7.5-31. - General governmental capital expansion fee. (a) There is hereby established a general governmental capital expansion fee which shall be imposed pursuant to the provisions of this Article for the purpose of funding capital improvements related to the provision of general governmental services, as such improvements may be identified in the capital improvements plan for general governmental services. Such fee shall be payable prior to the issuance of any building permit for a -5- residential, commercial or industrial structure. The amount of such fee shall be determined as follows: Current2019 As of October 1, 2017 As of January 1, 20192020 Resid., up to 700 sq. ft. $330.00 $549.00 $431.00 $549.00 619.00 Resid., 701 to 1,200 sq. ft. 423.00 741.00 581.00 741.00 834.00 Resid., 1,201 to 1,700 sq. ft. 465.00 809.00 634.00 809.00 911.00 Resid., 1,701 to 2,200 sq. ft. 487.00 821.00 644.00 821.00 925.00 Resid., over 2,200 sq. ft. 523.00 914.00 716.00 914.00 1,029.00 Commercial buildings (per 1,000 sq. ft.) 803.00 1,389.00 1,088.00 1,389.00 1,564.00 Industrial buildings (per 1,000 sq. ft.) 188.00 327.00 257.00 327.00 369.00 In the case of duplexes and multi-family structures, the amount of the fee for each dwelling unit shall be based upon the average size of the dwelling units contained within each such structure. Section 6. That Section 7.5-32 of the Code of the City of Fort Collins is hereby amended to read as follows: Sec. 7.5-32. - Transportation expansion fee. There is hereby established a transportation expansion fee which shall be imposed pursuant to the provisions of this Article for the purpose of funding transportation improvements related to the provision of transportation services. Such fees shall be payable prior to the issuance of any building permit for a residential, commercial or industrial structure. These fees shall be deposited in the “transportation improvements fund” established in § 8-87. The amount of such fee shall be determined as follows: TRANSPORTATION EXPANSION FEE SCHEDULE Current2019 As of October 1, 2017 As of January 1, -6- Resid., 1,201 to 1,700 sq. ft. 3,112.00 5,596.00 4,404.00 5,596.00 5,632.00 Resid., 1,701 to 2,200 sq. ft. 3,112.00 6,543.00 5,150.00 6,543.00 6,586.00 Resid., over 2,200 sq. ft. 3,112.00 7,014.00 5,520.00 7,014.00 7,059.00 Commercial 11,930.00 8,539.00 6,721.00 8,539.00 8,594.00 Office and Other Services 7,760.00 6,291.00 4,951.00 6,291.00 6,331.00 Industrial/Warehouse 1,130.00 2,030.00 1,598.00 2,030.00 2,043.00 Section 7. That Section 7.5-71(b) of the Code of the City of Fort Collins is hereby amended to read as follows: Sec. 7.5-71. - Neighborhood parkland capital expansion fee. (b) The amount of the fee established in this Section shall be determined for each dwelling unit as follows: Current2019 As of October 1, 2017 As of January 1, 20192020 Resid., up to 700 sq. ft. $1,300.00 $1,647.00 $1,343.00 $1,647.00 $1,855.00 Resid., 701 to 1,200 sq. ft. $1,667.00 2,205.00 1,797.00 2,205.00 2,483.00 Resid., 1,201 to 1,700 sq. ft. $1,842.00 2,408.00 1,962.00 2,408.00 2,712.00 Resid., 1,701 to 2,200 sq. ft. $1,919.00 2,433.00 1,983.00 2,433.00 -7- _______________________________ City Clerk -8- Passed and adopted on final reading on the 19th day of November, A.D. 2019. __________________________________ Mayor ATTEST: _______________________________ City Clerk -1- ORDINANCE NO. 131, 2019 OF THE COUNCIL OF THE CITY OF FORT COLLINS AMENDING CHAPTER 26 OF THE CODE OF THE CITY OF FORT COLLINS REGARDING CALCULATION AND COLLECTION OF DEVELOPMENT FEES IMPOSED FOR THE CONSTRUCTION OF NEW OR MODIFIED ELECTRIC SERVICE CONNECTIONS WHEREAS, the City Council is empowered and directed by Article XII, Section 6, of the City Charter to fix, establish, maintain and provide for the collection of such rates, fees or charges for utility services furnished by the City as will produce revenues sufficient to pay the costs, expenses and other obligations of the electric utility, as set forth therein; and WHEREAS, pursuant to City Code Sections 26-473 through 26-475, the City imposes development fees for new or modified electric service connections, including an Electric Capacity Fee (“ECF”) and a Building Site Charge (“BSC”); and WHEREAS, the ECF is a one-time charge designed to recover the initial cost of adding new development to the electric system, and the BSC is designed to recover actual time and materials costs associated with building on site electric facilities at the specific development; and WHEREAS, the ECF and BSC together represent the total electric plant investment fee (PIF) for new development; and WHEREAS, Fort Collins Utilities staff uses an approved cost allocation methodology to calculate ECF and BSC to assign costs based on actual system value, i.e. the “buy-in” approach also used to calculate service connection fees for water and wastewater services; and WHEREAS, the values and costs used in applying this cost allocation methodology are updated on a two-year cycle; and WHEREAS, the Energy Board considered the proposed 2019 ECF and BSC adjustments at its meeting on September 12, 2019, and recommended approval of the adjustments; and WHEREAS, based on the foregoing, it is the desire of the City Council to amend Chapter 26 of the City Code to update the values and costs applied in calculating ECF and BSC for new or modified electric service connections. NOW, THEREFORE, BE IT ORDAINED BY THE COUNCIL OF THE CITY OF FORT COLLINS as follows: Section 1. That the City Council hereby makes and adopts the determinations and findings contained in the recitals set forth above. Section 2. That Section 26-474(b) of the Code of the City of Fort Collins is hereby amended to read as follows: -2- Sec. 26-474. Residential electric development fees and charges. . . . (b) The ECF shall be the total of the dwelling unit charge and systems modification charge, to be determined as follows: (1) The dwelling unit charge shall be as follows: a. For a single-family panel size with one hundred fifty (150) amp service (nonelectric heat), per dwelling unit $1,5371,563 b. For a single-family panel size with two hundred (200) amp service $1,8791,967 c. For a single-family with electric heat, per dwelling unit $2,5082,587 d. For a multi-family panel size with one hundred fifty (150) amp service (non- electric heat), per dwelling unit $1,3501,382 e. For a multi-family panel size with two hundred (200) amp service or with one hundred fifty (150) amp service with electric heat, per dwelling unit $2,0662,108 . . . Section 3. That Section 26-474(d) of the Code of the City of Fort Collins is hereby amended to read as follows: Sec. 26-474. Residential electric development fees and charges. . . . (d) A Building Site Charge (“BSC”) for any new or modified residential service shall consist of the total of the applicable charges as described in this Subsection (d), and shall be paid as specified herein. -3- . . . (2) When any new or modified residential service requires installation by the Utility of secondary service the BSC shall include a secondary service charge (SSC), and shall be paid at the time of building permit and based upon the current rates as of the time of issuance of the building permit. The SSC for single-family and duplex residences shall be the total of the secondary service charges, determined as follows: a. The secondary service charge shall be as follows: Secondary Service Size Charge (up to 65 feet) Plus Per-Foot Charge for Each Foot Over 65 4/0 service 1,143.00 $1,248.00 7.05$8.70/Foot 4/0 Mobile Home Service 932.00 $987.00 N/A . . . Section 4. That Section 26-475(b) and (d) of the Code of the City of Fort Collins is hereby amended to read as follows: Sec. 26-475. Nonresidential electric development fees and charges. . . . (b) The ECF shall be the total of the kVA service charge and systems modification charge, to be determined as follows: (1) The kVA service charge shall be determined as follows. a. For customer electric loads served by the utility, the kVA service charge shall be calculated as follows: ECF shall be calculated as follows: secondary metered services $/kW = 320.31 341.28 + 21 21.82 x ln(kW) primary metered services $/kW = 212.78227.04 + 7.895.93 x ln(kW), Where ln is the natural logarithm -4- kW is calculated as follows: three phase services kW = A x V x SQRT(3) x PF x 0.3/1000 single phase services kW = A x V x PF x 0.3/1000 Where A is the requested amperage. V is requested line to line voltage. PF is the power factor, which is assumed to be 0.9. . . . (d) A Building Site Charge (“BSC”) for extending primary circuitry to the transformer for any new or modified nonresidential service shall be invoiced and paid in the same manner and at the same time as the ECF is invoiced and paid pursuant to Section§ 26-475(a). The BSC shall be the total of the primary circuit charge, transformer installation charge and any additional charges, determined as follows: (1) The primary circuit charge for service from the utility source to the transformer shall be as follows: a. For single-phase service, per foot of primary circuit $9.1218.54 b. For three-phase service, per foot of primary circuit $16.5827.61 (2) The transformer installation charge shall be as follows: a. For single-phase service, per transformer $1,153.191,708.51 b. For three-phase service, per transformer $2,458.143,166.54 . . . Section 5. That the modifications set forth above shall be effective for all fees paid on or after January 1, 2020. Introduced, considered favorably on first reading, and ordered published this 5th day of November, A.D. 2019, and to be presented for final passage on the 19th day of November, A.D. 2019. -5- __________________________________ Mayor ATTEST: _______________________________ City Clerk Passed and adopted on final reading on the 19th day of November, A.D. 2019. __________________________________ Mayor ATTEST: _______________________________ City Clerk -1- ORDINANCE NO. 132, 2019 OF THE COUNCIL OF THE CITY OF FORT COLLINS AMENDING CHAPTER 26 OF THE CODE OF THE CITY OF FORT COLLINS TO REVISE SEWER PLANT INVESTMENT FEES WHEREAS, the City Council is empowered and directed by Article XII, Section 6 of the Charter of the City of Fort Collins, to by ordinance from time to time fix, establish, maintain, and provide for the collection of such rates, fees or charges for water and for other utility services furnished by the City as will produce revenues sufficient to pay the costs, expenses, and other obligations as set forth therein; and WHEREAS, Article IV, Chapter 26 of the City Code establishes and sets forth the wastewater utility as a utility service furnished by and an enterprise of the City; and WHEREAS, City Code Sections 26-283 and 26-284 provide for sewer plant investment fees (“SPIFs”) to be based on and used for growth-related capital expansion costs of wastewater collection, transmission, treatment, and administrative facilities that are reasonably related to the overall costs of and required in providing wastewater services to serve new development; and WHEREAS, City Code Section 26-283 further requires that the City Manager annually review the parameters and rates of the SPIFs and also requires that the City Manager present such fees to the City Council for approval no less frequently than biennially; and WHEREAS, the City Manager and City staff have also recommended to the City Council adjustment of the SPIFs; and WHEREAS, the Water Board considered the proposed SPIFs adjustments at its meeting on September 19, 2019, and recommended approval of the proposed adjustments; and WHEREAS, based on the foregoing, City Council desires to amend Chapter 26 of the City Code to adjust the scope and rate of the PIFs as set forth herein. NOW, THEREFORE, BE IT ORDAINED BY THE COUNCIL OF THE CITY OF FORT COLLINS as follows: Section 1. That the City Council hereby makes any and all determinations and findings contained in the recitals set forth above. Section 2. That Section 26-284 of the Code of the City of Fort Collins is hereby amended to read as follows: Sec. 26-284. - Sewer plant investment fees and surcharges established. (a) The schedule of sewer plant investment fees, subject to the exceptions and additional requirements provided in this Section, is as follows: -2- Category SPIF A Single-family Per dwelling $3,537.003,590.00 B and C Duplex and Multi-family Per each dwelling unit or mobile home space $2,588.002,590.00 D, E, F Non-residential and Industrial Water meter size (inches) Fee Fee ¾ $7,518.007,710.00 1 $16,553.0017,190.00 1½ $31,728.0032,350.00 2 $65,813.0067,120.00 3 and above Calculated on an individual basis based on peak wastewater flow (determined in the manner set forth hereinafter) but not less than the charge for a two- inch meter G User outside Same as equivalent category, plus any special sanitation district fees H Special Determined pursuant to Subsection (d) of this Section . . . (d) The amount of the plant investment fee and surcharge for each nonresidential surcharged user, users in Category H and any user that is expected to generate greater than its proportionate share of peak day flow at the treatment plant for the applicable category (including both contributed wastewater volume and volume related to infiltration and inflow), shall be calculated utilizing the following formula: SPIF = Site Flow × [Flow$ + (BOD × BOD$ ) + (TSS × TSS$)] + I&I Flow × [Flow$ + (200 mg/l × BOD$) + (250 mg/l × TSS$ )] -3- Where: SPIF = Plant investment fee for Category H users and users discharging wastewater with average concentrations of BOD and/or TSS which exceed those average concentrations which are set forth in § 26-282(b) under Category E-34 Site Flow = The user's proportionate share of peak day flow at the treatment plant based on site flow discharge from user's site I&I Flow = That proportionate share of peak day flow due to infiltration and inflow as allocated to user's site flow discharge. I&I Flow is calculated based on Site Flow multiplied by 46.5% Flow$ = Unit cost of facilities attributable to treating wastewater flow Per Gallon $9.199.81 BOD = Average BOD concentration for user category or measured BOD concentration for the user as determined in accordance with Subsection (c) of this Section, but not less than 200 mg/l BOD$ = Unit cost of facilities attributable to treating BOD Per mg/l $0.01430.0147 TSS = Average TSS concentration for user category or measured TSS concentration for the user as determined in accordance with Subsection (c) of this Section, but not less than 250 mg/l TSS$ = Unit cost of facilities attributable to treating TSS Per mg/l $0.01140.0117 . . . (f) For purposes of this Section, the proportionate share of peak day flow at the treatment plant for users in Categories D, E and F shall be deemed to be: Water Meter Size (inches) Peak Flow (gallons per day) ¾ 491 1 1,0811,045 1½ 2,0721,965 2 4,2984,077 -4- 3 and greater Calculated on an individual basis based on user's proportionate share of peak day flow at the treatment plant (including both contributed wastewater volume and volume related to infiltration and inflow) but not less than the peak day flow for a two-inch meter Section 4. That the modifications set forth above shall be effective for all fees paid on or after January 1, 2020. Introduced, considered favorably on first reading, and ordered published this 5th day of November, A.D. 2019, and to be presented for final passage on the 19th day of November, A.D. 2019. __________________________________ Mayor ATTEST: _______________________________ City Clerk Passed and adopted on final reading on the 19th day of November, A.D. 2019. __________________________________ Mayor ATTEST: _______________________________ City Clerk -1- ORDINANCE NO. 133, 2019 OF THE COUNCIL OF THE CITY OF FORT COLLINS AMENDING CHAPTER 26 OF THE CODE OF THE CITY OF FORT COLLINS TO REVISE THE STORMWATER PLANT INVESTMENT FEES WHEREAS, the City Council is empowered and directed by Article XII, Section 6 of the Charter of the City of Fort Collins, to by ordinance from time to time fix, establish, maintain, and provide for the collection of such rates, fees or charges for water and for other utility services furnished by the City as will produce revenues sufficient to pay the costs, expenses, and other obligations as set forth therein; and WHEREAS, Article VII, Chapter 26 of the City Code establishes the stormwater utility as a utility service furnished by and an enterprise of the City; and WHEREAS, City Council has adopted stormwater basin and City-wide master plans recommending stormwater facilities necessary to provide for proper drainage and control of flood and surface waters within the City; and WHEREAS, in 1998, City Council adopted ordinance No. 168, 1998, determining that all lands within the City benefit by the installation of such stormwater facilities; and WHEREAS, existing stormwater rate payers have paid for the design, right of way, and construction of stormwater facilities identified in the drainage basin master plans that will benefit and be utilized by new development; and WHEREAS, City Council has determined that new development should pay its proportionate share of the costs of capital stormwater facilities in existence at the time of development in the form of a stormwater plant investment fee as established by City Code Section 26-512 (“Stormwater PIF”); and WHEREAS, City Code Section 26-511 requires that the City Manager review the rates and parameters for the Stormwater PIF annually and present them to City Council for approval no less frequently than biennially; and WHEREAS, the City Manager and City staff have also recommended to the City Council adjustment of the Stormwater PIF as set forth herein; and WHEREAS, the Water Board considered the proposed Stormwater PIF adjustments for at its meeting on September 19, 2019, and recommended approval of the proposed adjustments; and WHEREAS, based on the foregoing, City Council desires to amend Chapter 26 of the City Code to adjust the scope and rate of the Stormwater PIF as set forth herein. -2- NOW, THEREFORE, BE IT ORDAINED BY THE COUNCIL OF THE CITY OF FORT COLLINS as follows: Section 1. That the City Council hereby makes any and all determinations and findings contained in the recitals set forth above. Section 2. That Section 26-512 of the Code of the City of Fort Collins is hereby amended to read as follows: Sec. 26-512. - Stormwater plant investment fees established. . . . (2) Plant investment fee base rate. The stormwater plant investment fee base rate is hereby established as follows: Per gross acre of area $9,1429,447 . . . Section 3. That the modifications set forth above shall be effective for all fees paid on or after January 1, 2020. Introduced, considered favorably on first reading, and ordered published this 5th day of November, A.D. 2019, and to be presented for final passage on the 19th day of November, A.D. 2019. __________________________________ Mayor ATTEST: _______________________________ City Clerk Passed and adopted on final reading on the 19th day of November, A.D. 2019. __________________________________ Mayor ATTEST: _______________________________ City Clerk -1- ORDINANCE NO. 134, 2019 OF THE COUNCIL OF THE CITY OF FORT COLLINS AMENDING CHAPTER 26 OF THE CODE OF THE CITY OF FORT COLLINS TO REVISE WATER PLANT INVESTMENT FEES WHEREAS, the City Council is empowered and directed by Article XII, Section 6 of the Charter of the City of Fort Collins, to by ordinance from time to time fix, establish, maintain, and provide for the collection of such rates, fees or charges for water and for other utility services furnished by the City as will produce revenues sufficient to pay the costs, expenses, and other obligations as set forth therein; and WHEREAS, Article III, Chapter 26 of the City Code establishes and sets forth the water utility as a utility service furnished by and an enterprise of the City; and WHEREAS, City Code Sections 26-120 and 26-128 provide for water plant investment fees (“WPIFs”) to be based on and used for growth-related capital expansion costs of water supply, storage, transmission, treatment and distribution, and administrative facilities that are reasonably related to the overall costs of and required in providing water services to serve new development; and WHEREAS, City Code Section 26-120 further requires that the City Manager annually review the parameters and rates of the WPIFs and also requires that the City Manager present such fees to the City Council for approval no less frequently than biennially; and WHEREAS, the City Manager and City staff have also recommended to the City Council adjustment of the WPIFs, as set forth herein; and WHEREAS, the Water Board considered the proposed WPIFs adjustments at its meeting on September 19, 2019 and recommended approval of the proposed adjustments; and WHEREAS, based on the foregoing, City Council desires to amend Chapter 26 of the City Code to adjust the scope and rate of the WPIFs as set forth herein. NOW, THEREFORE, BE IT ORDAINED BY THE COUNCIL OF THE CITY OF FORT COLLINS as follows: Section 1. That the City Council hereby makes any and all determinations and findings contained in the recitals set forth above. Section 2. That Section 26-128 of the Code of the City of Fort Collins is hereby amended to read as follows: Sec. 26-128. Schedule C, water plant investment fees. The water plant investment fee prescribed in § 26-120 shall be payable by users both inside and outside of the City, as follows: -2- (1) Single-family residential buildings. For a single-family residential lot greater than one-half (½) acre in size, the lot size shall be deemed to be one-half (½) acre for the purpose of this fee calculation. For each additional tap or meters larger than three-fourths (¾) inch, the nonresidential rate shall apply. a. For the first three-fourths-inch water tap or meter $730.00 b. For the first one-inch water tap or meter to accommodate residential fire suppression systems based upon the criteria established in the International Building Code as adopted and amended pursuant to Chapter 5 of this Code. $1,237.00 c. Plus, for each square foot of lot area $0.360.39 (2) Residential buildings of two (2) or more dwelling units The fee will provide for one (1) tap per residential building and an adequate number of additional taps to serve common irrigable areas, if any. The number and size of taps shall be determined by the Utilities Executive Director based upon the criteria established in the Uniform Plumbing Code as amended pursuant to Chapter 5 of this Code. a. For each residential building unit $530.00550.00 b. Plus, for each square foot of lot area $0.260.29 (3) Mobile home parks The size of the tap shall be determined by the Utilities Executive Director based upon the criteria established in the Uniform Plumbing Code as amended pursuant to Chapter 5 of this Code. a. For each residential building unit $530.00550.00 b. Plus, for each square foot of lot area $0.260.29 (4) Hotels, rooming houses, sororities, fraternities and similar uses. The nonresidential rate shall apply. (5) Nonresidential service a. Service to all nonresidential taps, including, but not limited to, taps for commercial and industrial service, shall be charged according to the size of the meter pursuant to the -3- following schedule: Meter Size (inches) Non-residential Plant Investment Fee ¾ $7,940.008,790.00 1 $20,960.0023,060.00 1½ $43,520.0045,610.00 2 $72,470.0078,820.00 b. The fee for all meters larger than two (2) inches shall be calculated by multiplying the estimated peak daily demand by the following charge per gallon, but shall not be less than the charge for a two-inch meter. $4.995.23 Section 3. That the modifications set forth above shall be effective for all fees paid on or after January 1, 2020. Introduced, considered favorably on first reading, and ordered published this 5th day of November, A.D. 2019, and to be presented for final passage on the 19th day of November, A.D. 2019. __________________________________ Mayor ATTEST: _______________________________ City Clerk -4- Passed and adopted on final reading on the 19th day of November, A.D. 2019. __________________________________ Mayor ATTEST: _______________________________ City Clerk -1- ORDINANCE NO. 135, 2019 OF THE COUNCIL OF THE CITY OF FORT COLLINS AMENDING CHAPTER 26 OF THE CODE OF THE CITY OF FORT COLLINS TO REVISE THE WATER SUPPLY REQUIREMENTS FEES WHEREAS, the City Council is empowered and directed by Article XII, Section 6, of the City Charter to fix, establish, maintain, and provide for the collection of such rates, fees, or charges for utility services furnished by the City as will produce revenues sufficient to pay the costs, expenses, and other obligations of the water utility, as set forth therein; and WHEREAS, the City owns and operates a water utility that provides treated water service to customers with its service area; and WHEREAS, through various water supply furnishing or development programs, the City has historically required that persons desiring new or increased water service from the water utility, among other things, furnish or otherwise provide to the City certain rights to use water or payments of cash-in-lieu thereof in order to offset the impacts of the requested water service, which requirements are currently set forth in Sections 26-129 and 26-146 through 26-150 of the Code of the City of Fort Collins as the water supply requirements (“WSR”); and WHEREAS, City staff has historically reviewed the WSRs periodically to ensure that the rights to use water and cash payments received by the City are sufficient; and WHEREAS, City staff has completed a review of the WSR and has determined that an increase in the cash-in-lieu related excess water use surcharge rate is necessary to ensure that, among other things, the impacts of new and increased water service are offset and that the water utility has sufficient water supplies and infrastructure to serve customers of the water utility with an adequate level of service. NOW, THEREFORE, BE IT ORDAINED BY THE COUNCIL OF THE CITY OF FORT COLLINS as follows: Section 1. That the City Council hereby makes and adopts the determinations and findings contained in the recitals set forth above. Section 2. That Section 26-129 of the Code of the City of Fort Collins is hereby amended to read as follows: Sec. 26-129. - Schedule D, miscellaneous fees and charges. The following fees and service charges shall be paid by water users, whether inside or outside the City limits: (a) Connection fees and service charges shall be as set forth in Subsection 26-712(b). -2- (b) The fire hydrant fees and charges shall be as follows: (1) For installation of meter Per meter $43.00 (2) For removal of meter Per meter $43.00 (3) For daily rental for meter and fittings Per meter $8.60 (4) For water service Per 1,000 gallons $10.7213.36 A deposit may be required in the amount of the charges for the anticipated water usage and rental. (c) The fees and requirements for water supply shall be as follows: (1) To satisfy Water Supply Requirement (WSR) with cash payments Per acre-foot of WSR $17,300.00 21,500.00 (2) Excess water use surcharge assessed on commercial and irrigation taps when water use is in excess of the applicable annual allotment Per 1,000 gallons $8.1410.09 (3) The annual water allotment, based on the minimum WSR shall be as follows: Meter Size (inches) Annual Allotment (gallons/ year) ¾ 293,270 1 739,680 1½ 1,538,020 2 2,577,480 -3- Above 2 325,851 gallons per acre foot of WSR . . . Section 3. That the modifications set forth above shall be effective for all fees paid on or after January 1, 2020. Introduced, considered favorably on first reading, and ordered published this 5th day of November, A.D. 2019, and to be presented for final passage on the 19th day of November, A.D. 2019. __________________________________ Mayor ATTEST: _______________________________ City Clerk Passed and adopted on final reading on the 19th day of November, A.D. 2019. __________________________________ Mayor ATTEST: _______________________________ City Clerk 2,740.00 Resid., over 2,200 sq. ft. $2,056.00 2,712.00 2,210.00 2,712.00 3,053.00 Introduced, considered favorably on first reading, and ordered published this 5th day of November, A.D. 2019, and to be presented for final passage on the 19th day of November, A.D. 2019. __________________________________ Mayor ATTEST: 20192020 Resid., up to 700 sq. ft. $1,905.00 $2,321.00 $1,827.00 $2,321.00 $2,336.00 Resid., 701 to 1,200 sq. ft. 2,143.00 4,310.00 3,392.00 4,310.00 4,338.00 284.00 223.00 284.00 320.00 Industrial buildings (per 1,000 sq. ft.) 41.00 66.00 52.00 66.00 74.00 In the case of duplexes and multi-family structures, the amount of the fee for each dwelling unit shall be based upon the average size of the dwelling units contained within each such structure. Staff seeks direction from Council Finance with which option to proceed for City Council consideration. If supported, staff is tentatively scheduled to present the selected 15‐year capital option to full Council on October 1, 2019. DISCUSSION / NEXT STEPS: A 15 year loan term is programmatically important ‐ 80% of customers / owners said if longer term is not available, it would not be feasible for them to participate. Ross Cunniff; see if my impression is right – interest rate swap – really a bet that the variable rate will go down and they will potentially make potentially more money – Travis Storin; speculating or they have a hedge of their own that they are trying to install Ross Cunniff; re: the risk to the person who wants to pay the fixed interest 1) Variable rate goes down ‐ paying more for money than we would have had to 2) Hard to back up ‐ there may be some potential that a partner might default on the agreement What are our contingencies if that happened? ATTACHMENT 4 Unused 2020 Ongoing Revenue 398 15 165 197 775 - Available Reserves (1-Time, if requested) 2,700 11,100 2,400 2,700 1,900 8,300 29,100 - Less: 2019 Reappropriation (1-Time) (340) (28) (584) (952) - Less: 2019 Supplemental Approps (1-Time) (62) (20) (82) Subtotal of Funding Changes 748 2,298 11,100 1,975 2,583 281 1,194 8,300 165 197 28,841 ATTACHMENT 4