Loading...
HomeMy WebLinkAboutAgenda - Mail Packet - 7/11/2017 - Council Finance & Audit Committee - July 11, 2017Finance Administration 215 N. Mason 2nd Floor PO Box 580 Fort Collins, CO 80522 970.221.6788 970.221.6782 - fax fcgov.com AGENDA Council Finance & Audit Committee July 11, 2017 1:30 - 4:00 pm Colorado River Community Room - 222 Laporte Approval of Minutes from the May 15 th Council Finance meeting. 1. 2016 Financial Audit Review 20 minutes T. Storin 2. 2018 Benefits Plan Design & Cost Share 30 minutes T. Roche 3. 2016 Year End Fund Balance Review 30 minutes T. Storin 4. Sherwood House Transaction 30 minutes H. Matson 5. Raw Water / Cash in Lieu 20 minutes C. Webb D. Dustin 6. Review Master Plan on Council Approved Fees 20 minutes T. Smith Council Finance Committee & URA Finance Committee Agenda Planning Calendar 2017 RVSD 07/05/17 mnb Jul 11 2016 Financial Audit Review 20 min T. Storin 2018 Benefits Plan Design & Cost Share 30 min T. Roche 2016 Year End Fund Balance Review 30 min T. Storin Sherwood House Transaction 30 min H. Matson Raw Water / Cash in Lieu 20 min C. Webb D. Dustin Review Master Plan on Council Approved Fees 20 min T. Smith URA Aug 29 2017 Revenue & Contingency Plan Update 10 min M. Beckstead Budget Revisions for 2018 30 min L. Pollack PILOTs on Water 20 min T. Smith J. Duval Financial Mgmt Policy Updates – Budget, Investment, Fund Balance 30 min J. Voss Metro District Policy 30 min J. Birks URA Sep 18 BFO Revenue Allocation Methodology 30 min L. Pollack Housing Affordability Task Force – Policy Recommendation 30 min S. Beck-Ferkiss Natural Gas Franchise Agreement 15 min A. Gavaldon J. Duval Occupation Tax Category Changes 20 min T. Smith URA Oct 16 Year End Adjustment Ordinance 20 min L. Pollack URA Future Council Finance Committee Topics: County IGA – URA TIF Evaluation Process Phase II Fee Discussions – Development Review Fees & Wet Utilities Grant Policy – Administrative Support KFCG Renewal Discussion – Nov 2017 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 Minutes 05/15/17 10:00 am - noon CIC Room Council Attendees: Mayor Wade Troxell, Gerry Horak, Ross Cunniff, Ken Summers Staff: Darin Atteberry, Mike Beckstead, Jeff Mihelich, John Duval, Travis Storin, John Voss, Tiana Smith, Lawrence Pollack, Andres Gavaldon, Noelle Currell, Joanne Cech, Jackson Brockway, Lance Smith, Josh Birks, Jackie Theil, Carrie Daggett, Laurie Kadrich Others: Kevin Jones (Chamber of Commerce), James Manire First Southwest, Kathi Mathis TB Group (Metro Districts) Meeting called to order at 10:03 am Ross Cunniff moved to approve Minutes for the April 28th Council Finance Meeting. Ross Cunniff seconded the motion. Minutes were approved unanimously. Ken Summer is proposed new Council Finance Committee member replacing Gerry Horak. A. Parking Garage Financing John Voss, Controller Debt Financing - received 5 proposals and selected Vectra Bank as best overall First payment January 15, 2018 Final payment July 15, 2027 Average Annual Payment $962,000 Rate 2.48% Callable at any time with no prepay fee Borrowing Issue Costs* $ 80,000 Purchase Price 8,350,000 Total 8,430,000 Request is for an additional $55K - from reserves in 2018 2018 General Fund Reserves ($902k in 2018 budget, need $55k more) 2019 and forward General Fund ongoing $662,000 DDA contribution $300,000 2 Mike Beckstead; IGA is in process - this was presented to DDA last week and they are supportive - the Firehouse Alley garage plan to continue 4 years beyond the debt service. Takeaway from retreat on Saturday - fund balance presentation in July will be helpful. James Manire, Financial Advisor from First Southwest; internal process - externals include financing mechanism which is a lease purchase structure - this is how the bank views it. The City Senior Center as the existing asset in this transaction which will allow us to generate the funds. We were pleased to get the 5 proposals and looking forward to more lease purchase structured transactions. Actions; Mike Beckstead to schedule a meeting with Ken Summers to bring him up to speed. This is scheduled to come to Council as a leasing ordinance on June 6th for 1st Reading and 2nd Reading will be July 5th. The closing is scheduled for July 18th Mayor Troxell; good to go B. Long Term City Debt Funding Needs - Debt Service Planning Travis Storin, Director of Accounting John Voss, Controller EXECUTIVE SUMMARY There are several large projects being considered in the fifteen years that will likely need debt financing. In an ideal world new debt service would perfectly dovetail with completion of other debt service. Ongoing money is freed up when debt service discontinues. As the base case scenario shows, there is simply not enough debt service ending to close the gap that may be caused by new debt service. The presentation and discussion is intended to highlight the issues and propose some options to close the gap. GENERAL DIRECTION SOUGHT AND SPECIFIC QUESTIONS TO BE ANSWERED 1. Should staff investigate refinancing of the 2012/2004 debt, related to police and natural areas, in an effort to lower annual cash outflows? 2. Should staff plan on using General Government Capital Expansion Fees to lower the amount needed to finance a new City Hall and as well as lower annual debt service? 3. Should staff draft the details of a program which sets aside money in the Budgeting for Outcomes process? 4. Feedback on assumptions such as specific projects and project timing. Scope and Assumptions: • Does not include Utilities, Golf, DDA or URA • Base case assumes Hotel Parking issues in 2017 • Does not include proposed debt for Lemay/Vine • Does not include potential dedicated revenue from General Improvement District for I-25/Prospect interchange 3 Existing Debt Service: James Manire; all components are lease purchase financing in one form or another - this will continue to be a focal point. COP - Certificate of Participation Mike Beckstead; for the Police Training Facility and the I25 interchange we would need to find other municipal assets to do a lease purchase on as collateral for that financing. Funding Available (when existing debt matures) Gerry Horak; how much is coming out of the fees for the Police Building? -some Illustration for collecting fees / further explanation would be helpful for Council presentation tomorrow evening. Mike Beckstead; the $375K a year coming out of Police Capital Expansion Fees. Also, to note the $243K for Prospect I25 is a very preliminary number - will likely be lower that this in the first couple of years - could be higher later on - this is a placeholder as we work through with Timanth’s support - we are very early in this discussion 4 Project Assumptions: Travis Storin; staff has modeled out 5 projects and the associated debt service we would take on with those projects. Ross Cunniff; context might be helpful if this goes to Council to highlight BOB (Building on Basics) 2 also referred to as CCIP (Community Capital Improvement Program) expires in 2025 - we should highlight that because that is an alternative to debt financing for some of the future. Gerry Horak; would be helpful for Council to have the rate and term of the instrument next to the project. Also, in the placeholder for Lemay /Vine - include approximate estimates. Option 1 - Refinance Police HQ Building (high quality asset to be used in a transaction like this) Mike Beckstead; looking for direction from Council Finance - should we trade rate and cost for cash flow? Police Building is a high quality asset to be used in a transaction like this. Option 2 - Use General Government - Capital Expansion Fee • Keeps assumptions from Option 1 for Police refinancing package • Reduce the amount needed to finance the new City Hall • Borrow $43.2 M instead of $60 M 5 • Assumes draft CEF fees are ultimately adopted in 2017 • Assumes GG CEF revenue is based on average billing units for 10 years: 2006 to 2015 • Results in lower annual cash flow needs by $1.1M • Without use of GG CEF $8.0M • With use of GG CEF $6.9M Option 3 - Disciplined Set Aside • Set aside $500k each year of growth in ongoing revenue • Spend that on one time initiatives until it's needed for debt service • Is scalable and could be done in variable amounts • Funding source - from GF ongoing revenue TBD • Over time, can build up on going revenue capacity to support future debt service gap with a new City Hall. Key Takeaways: Jim Manire; looking forward there will be some sequence of transactions - question if this is fully debt financed or not will need to be addressed. City will be doing lease transactions similar to the one coming up in June for the parking garage. A lot of focus is in selecting the asset to be leased - Police Building - motivation to make it available to re-leverage for newer assets – the assets in the next couple of cycles are not likely to lend themselves to the leases specifically; Police Training Facility will be difficulty due to joint ownership.I25 interchange not a real property transaction. Looking further out - City Hall improvements - would support its own lease but until then we will be looking for alternative collateral similar to what is being done with the Senior Center being leveraged for the parking improvements. There will be tradeoffs - alternatives to doing them piece meal trying to coordinate them programmatically - looking out beyond more than just the next transaction and the sequence of capital planning needs to be and what financing options support it. Direction and Comments Sought • Is refinancing the Police headquarters debt an attractive option? • Does the Committee support the use of General Government Capital Expansion Fees towards a new City Hall? • Draft program details which sets aside $ in budget process? • Comments on assumptions? Mayor Troxell; we will have continual discussions as we go forward - this has been valuable - the forward thinking on where we are going and how we are going to get there. Related to the Police Training Facility and 6 Police HQ – since Loveland coming at it more as a cash standpoint - 2 owners - they are looking at it more as a cash deal than a financing deal. Jim Manire; you can’t offer up an asset you are buying with the City of Loveland - identify your component or proportional ownership - will be challenging - not assuming that will be the nature of that transaction. Mike Beckstead; the Training Facility is on leased land - shared ownership - the kind of thing the City could back away from this in difficult financial times. Jim Manire; we think the Police Services Building will be valued at approx. $40M - capacity to leverage a portion of this for a capital program. Ken Summers; what is the current debt on the Police Services Building? Mike Beckstead; the annual debt service is approximately $2.1M depending on the year. The Police portion of the COPs was $18M as of the end of 2016. Lease is bundled with Natural Areas and Transportation - we propose that Natural Areas and Transportation could pay out of their reserves - total note outstanding is approx. $22.7M - Soapstone is $3.7M of this and Transportation is $1.0M and remainder is Police. Both would have ample surplus. I am sensing that there is appetite to continue to explore the Police HQ Building when we get into 2018 and we are looking at closing the transaction for the Training Facility and the Prospect Interchange - both will be needed no later than Q3 of 2018. Timing of two does come together - puts debt payments into 2019 (next budget cycle). Ross Cunniff; I am not real excited but I don’t have a strong argument against it. We don’t have the capacity to pay for a new City Hall. Trade off - additional debt - refinancing of an essential service building for a general government purpose seems a little distasteful for me as well. We need to proceed cautiously in regarding to new City Hall – The County is still paying political penalties for use of debt financing - lease instrument for Civic Building - jail tax being defeated – that they did that without voter approval – would be good to for new city hall to have voter approval - would reduce the need to get too creative on these other needs. Gerry Horak; I agree with Ross – there needs to be a lot more thinking - no decision on when a new City Hall would be done - some year in the future - that level of funding for debt without a vote makes no sense - If we have a clear source of revenue - There are other choices for what people may want or not want. Natural Areas gets paid off - I think we should do more hard decision making sooner rather than later – shouldn’t let future Councils - argument has to be really strong - cash flow argument not strong enough Mike Beckstead; we will come back to talk in detail in the February / March 2018 timeframe well in advance of any transaction. Ross Cunniff; I do like that we are thinking about this now when we don’t have a crisis Darin Atteberry; we have learned - you don’t come out and announce that you want to build a new x facility – the master plan and then let’s talk about the need - appreciate the feedback – very intentional that we do not want to surprise a future leadership group with a gap. 7 Gerry Horak; above the line and below the line things - things other than I25 aren’t as clear - some of these we wish we had versus commitments - assumptions by the community that we have approved these things - some way to indicate which initiatives have voter / community support John Voss: I25 and Prospect - when we went to the potential collateral for the $19M was challenging – some assets had to be weeded out due to environmental concerns such as the Museum which was built on land fill. Using the Police Building in a combined transaction would help in this area. Mike Beckstead; action - we need to clearly articulate the reasons why this might make sense when we bring this back. Mayor Troxell; when we get to a parking garage discussion - we had that one discussion with one group – flips the thinking of parking garages on how it drives the local economic activity - we tend to think of it as more capacity for the cars - by flipping the value proposition. In future – suggestion that the use of parking garages could begin to diminish due to connected streets, etc. - context of need – Elizabeth Hotel garage with a possibility of a conversion at some date - Puts more onus on PDT and its inputs to requirements for another parking garage. C. Residential Metro Districts Tom Leeson, CDNS Director Josh Birks, Economic Health Director EXECUTIVE SUMMARY City staff has had discussions with property owners about the formation of metropolitan districts to finance the cost of infrastructure, as well as on-going O&M for projects that include amenities that go beyond City requirements and further other City goals, specifically related to sustainability. The City generally supports the formation of Metro Districts for developments where the projected use is primarily commercial, but the City policy is currently to not approve a Metro Districts for residential projects. However, the policy is intended as a guide only, and the policy also states that the City generally supports the formation of a District where it is demonstrated that a District is needed to provide public improvements to local development and will result in enhanced benefits to existing or future business owners and /or residents of the City and the District. GENERAL DIRECTION SOUGHT AND SPECIFIC QUESTIONS TO BE ANSWERED Is a Metro District an appropriate financing tool for a residential development that is proposing infrastructure improvements and amenities that go beyond City requirements and further other City goals, such as sustainability or urban infill with quality public spaces? BACKGROUND/DISCUSSION Metro Districts, within the City of Fort Collins, have predominately been utilized as a financing tool for commercial development projects. 8 Ross Cunniff; concern about residential / metro districts is the management / governance areaand then everything else - my understanding is that the household residents don’t get to participate in the governance on the management side. Can we change that structure? The people who are living there and are paying the property taxes currently have very little say in matters. Josh Birks; true to say that often because the metro districts are formed at the time that there is a single land owner (the developer) before the lots are sold - in the initial years in a Metro District the board is largely composed of the developer and the single land owner. Board terms are defined - when those seats turn over - they (the future homeowners in a residential) then have a role in picking their own board. The Council that sets up the service area plan also has a significant role in determining what that board is able to do (everything from setting the maximum Mill they can charge, the maximum debt they can issue and what items they can use the debt and operations for. One of the things that is challenging is that there is a sense in early owners that they don’t have influence but that is due to the transition from developer to land owners. Ross Cunniff; at least in some Metro Districts in the state is that the actual residents are not ever eligible to vote for the management board or eligible to serve Josh Birks; there may be some structures where that is true but under the statutes, the land/ homeowners have the right to vote for their representative. Carrie Daggett; there are types of entities in Northern Colorado - some types there are not an elected board – there are types of entities where that is a distinction - we will follow up. Ken Summers; can a Metro District be set up without a vote? Timing - since there is financing based on a Mil levy - can it be set up before development is built out. Typically Metro Districts are in an areas where that is not an incorporated municipality to provide some of the services. Question - concept of Metro District vs the typical HOA type of structure (pros and cons, what is similar, what is different) . I would be interested in terms of comparison / contrast – why one avenue would be preferred over the other (HOA funded by dues - Metro Districts funded by property tax assessment). Gerry Horak; the question we are being asked is should staff further investigate Metro Districts - the answer is yes as we don’t have enough information to give direction. What are the pros and cons for the city and for the folks who will be in it? We want to know the financial implications. Ross Cunniff; I have heard that because it is a property tax assessment for the Metro District it complicates the county assessment - makes it easier to pitch sales tax initiatives if there is not a huge part of the city bound by Metro Districts property taxes. 9 Gerry Horak; using potential Mils - there is not enough here to give any direction other than do more investigation (pros and cons) so we have the information we need to provide guidance. Come back to this committee with the pros and cons details – benefits, costs. Why would staff recommend this over an HOA? Josh Birks; would Council Finance Committee like to see Staff continue to spend additional time investigating this policy? We are seeing a larger number of requests for these - to make some policy changes to make the process more transparent and consistent would be beneficial. We have already used Metro Districts in some ways that were not contemplated in the 2008 policy – most notably is the way we used it as a vehicle at the Mall to create the public financing there. We are conscious that we already set a precedent that has changed from the 2008 policy – in many ways we need to go back and revisit - do we want that to be a onetime exception or? Mayor Troxell; potential issues that have been identified – like water tap - laying out better understanding – related tradeoffs - pros and cons and also alternatives. Josh Birks; do we want to make a formal statement that there is something beyond predominantly commercial that we want to support with Metro Districts? Gerry Horak; it would be Staff’s responsibility to come back with recommendations on how to change the policy Next Step; Josh Birks and Tom Leeson to formalize what they have seen and what the requests are and then make a recommendations on policy changes at a future work session. Mayor Troxell; water taps - there may be other things in the near term (3-5 years) like annexation – does that enable? Gerry Horak; how is it really made transparent to the homeowners? Ross Cunniff; does the homestead exception apply to Metro District? Josh Birks; we will need to follow up on that. D. Budget Contingency Planning Mike Beckstead, CFO Lawrence Pollack, Budget Director EXECUTIVE SUMMARY Sales Tax results through April of 2017 indicate a shortfall from budget, when including use tax the short fall to the General Fund is roughly $500k with a third of the year behind us. Other revenue is equal to or slightly ahead of budget in the General Fund. As a result of a potential revenue short fall if the rest of the year’s sales tax growth remains soft, the City Manager and Executive Leadership Team have been developing a framework for adjusting the City budget in the event there is a revenue shortfall. Staff will review macro-economic indicators, year-to-date revenue and expenditures and a framework for budget adjustments if revenue continues to underperform vs. budget. 10 GENERAL DIRECTION SOUGHT AND SPECIFIC QUESTIONS TO BE ANSWERED What questions does the Council Finance Committee have about the proposed contingency framework? Is the Council Finance Committee supportive of bringing the remaining 2017 Reappropriation items forward for full Council consideration? BACKGROUND/DISCUSSION Sales tax is the most significant revenue stream in the General Fund and Keep Fort Collins Great Fund, and is critical in supporting the programs and services funded by the City’s three other voter approved quarter cent tax initiatives. 2017 sales tax through April is flat compared to 2016. However, analysis of the data exposed two anomalies. First is a large sales tax audit finding in Q1 2016 that was not comparable to Q1 2017. Second is the required rebate of sales tax revenue from the Foothills Mall over the agreed upon base level of sales tax collections. Factoring out those two anomalies puts s2017 sales tax growth at 4.0% for the year. This growth is still below budget, but is moderate growth over 2016. Historically, the 1st quarter of the year is not a good predictor of annual sales tax revenue; but since it is under budget year to date, it is financially prudent to have a contingency plan that would be implemented upon specified and agreed upon trigger points. The contingency plan being presented to the Council Finance Committee is a framework of the actions that would occur based on those trigger points. If those triggers would occur, specific reductions to programs and other budget line items would be brought back to the Council Finance Committee. Gerry Horak; a comparison including 3 and 5 year rolling averages would provide a trend. Mike Beckstead; we are working with a Professor at CSU on developing a database where municipalities put their own data in - consistency at a category level - intent would be to compare on a real time basis- standardize the codes so there is consistency at a category level. We are experiencing slower growth - we are behind in sales tax approximately $1.7M for the year against the budget– we are ahead with use tax - $830K net across all funds – ($500K in General Fund and $200K in KFCG) 11 General Fund Set Aside for Economic Changes: Mike Beckstead; this framework will live on if we have future revenue shortfalls. 2018 was 3% growth - we started experiencing the change in late 2016. We have projected 4.4% sales tax growth in 2017 - things slowed down in the 2nd half of 2016 - 2018 was projected at 3% growth - so difficult to forecast - we were at 5.5 % over through June 2015 Gerry Horak; are you looking to use a more conservative methodology? City Plan is a big one to change - we have asked for an evaluation. Darin Atteberry; I think we can see some reduced scope and savings with City Plan but we still have work to do on the Transit Plan and Master Street Plan. Ross Cunniff; what is the interest in enabling Council to have a strong financial position? Where did we end up on the Benefits policy? Mike Beckstead; we are bringing that back in July for Council review. ELT and Darin – we are going to continue to work on this. Gerry Horak and Ross Cunniff; we need a scheduled work session. Could we do a work session on the 30th? Darin Atteberry; we will talk at Leadership on Monday and come up with a time. Rigor is good and this has led to more rigor at the staff level and ELT – there is a greater level of ownership in decisions. Challenge is we do take the budget as a commitment document – we are going to deliver on that. The organization is at a point where we can’t just say we are going to absorb this any longer. If we don’t use reserves or if we don’t hire – then here are the impacts of that. We would come back to Council and say that we are not going to do these 3 things as an example. In our QSARs - we are not only watching spending - we are also looking at underspends - if we committed to build Trilby and College we want to make sure that commitments we made are being done. We get through a budget cycle – that was adopted – those dollars were never spent – that program just set idle – we are getting much better at that. Other Business Gerry Horak; we should have alternates for each Council Member for the 5 Council committees – we have this for Ethics but we don’t have this for any others - that way you always have some diverse viewpoints. COUNCIL FINANCE COMMITTEE AGENDA ITEM SUMMARY Staff: Travis Storin, Accounting Director Jim Burke, Assurance Senior Manager, RSM US LLP Date: July 11, 2017 SUBJECT FOR DISCUSSION Independent Auditors’ Report on 2016 Financial Statements Independent Auditors’ Report on Compliance for Major Federal Programs EXECUTIVE SUMMARY RSM will be presenting the Report to the City Council. This report covers the audit of the basic financial statements and compliance of the City of Fort Collins for year-end December 31, 2016. GENERAL DIRECTION SOUGHT AND SPECIFIC QUESTIONS TO BE ANSWERED Staff seeks input on areas of priority or concern, other than those established in this Report to the City Council, for matters of recordkeeping and/or the City’s internal control environment. Otherwise there are no specific questions to be answered as this is a 2016 year-end report. BACKGROUND/DISCUSSION Every year the City is required to be audited in compliance with Government Auditing Standards. RSM finalized its financial statement audit and compliance report on June 19, 2017 and the firm is required to report the results of the audit to those charged with governance. There were no findings identified related to Federal grants in the Compliance Report. Financial misstatements identified by the auditors that were deemed immaterial for adjustment and control deficiencies identified by the auditors can be found in the Report to the City Council, Exhibit A. Staff will provide a written response to the audit findings and misstatements at the October Council Finance Committee meeting. ATTACHMENTS 1. Report to the City Council 2. Compliance Report 3. Comprehensive Annual Financial Report City of Fort Collins, Colorado Compliance Report Year Ended December 31, 2016 Contents Report on internal control over financial reporting and on compliance and other matters based on an audit of financial statements performed in accordance with Government Auditing Standards 1-2 Report on compliance for each major federal program; report on internal control over compliance; and report on the schedule of expenditures of federal awards required by The Uniform Guidance 3-4 Schedule of expenditures of federal awards 5-6 Notes to schedule of expenditures of federal awards 7 Summary schedule of prior audit findings 8 Schedule of findings and questioned costs 9-10 Corrective action plan 11 1 Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards Independent Auditor’s Report Honorable Mayor and Members of the City Council and City Manager of the City of Fort Collins, Colorado We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of the governmental activities, the business-type activities, the discretely presented component unit, each major fund and the aggregate remaining fund information of the City of Fort Collins, Colorado (the City), as of and for the year ended December 31, 2016, and the related notes to the financial statements, which collectively comprise the City’s basic financial statements, and have issued our report thereon dated June 19, 2017. Internal Control Over Financial Reporting In planning and performing our audit of the financial statements, we considered the City’s internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City’s internal control. Accordingly, we do not express an opinion on the effectiveness of the City’s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. 2 Compliance and Other Matters As part of obtaining reasonable assurance about whether the City’s financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the City’s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City’s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Denver, Colorado June 19, 2017 3 Report on Compliance for Each Major Federal Program, Report on Internal Control Over Compliance and Report on Schedule of Expenditures of Federal Awards Required by the Uniform Guidance Independent Auditor’s Report Honorable Mayor and Members of the City Council and City Manager of the City of Fort Collins, Colorado Report on Compliance for Each Major Federal Program We have audited the City of Fort Collins, Colorado’s (the City) compliance with the types of compliance requirements described in the OMB Compliance Supplement that could have a direct and material effect on each of the City’s major federal programs for the year ended December 31, 2016. The City's major federal programs are identified in the summary of auditor's results section of the accompanying schedule of findings and questioned costs. Management’s Responsibility Management is responsible for compliance with the requirements of laws, regulations, contracts and grants applicable to its major federal programs. Auditor’s Responsibility Our responsibility is to express an opinion on compliance for each of the City’s major federal programs based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the audit requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Those standards and the Uniform Guidance require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the City’s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion on compliance for each major federal program. However, our audit does not provide a legal determination of the City’s compliance. Opinion on Each Major Federal Program In our opinion, the City complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended December 31, 2016. 4 Report on Internal Control over Compliance Management of the City is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our audit of compliance, we considered the City’s internal control over compliance with the types of requirements that could have a direct and material effect on each major federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for each major federal program and to test and report on internal control over compliance in accordance with the Uniform Guidance, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the City’s internal control over compliance. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of the Uniform Guidance. Accordingly, this report is not suitable for any other purpose. Report on Schedule of Expenditures of Federal Awards Required by the Uniform Guidance We have audited the financial statements of the governmental activities, business-type activities, the discretely presented component unit, each major fund, and the aggregate remaining fund information of the City of Fort Collins, Colorado as of and for the year ended December 31, 2016, and the related notes to the financial statements, which collectively comprise the City’s basic financial statements. We issued our report thereon dated June 19, 2017, which contained unmodified opinions on those financial statements. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the basic financial statements. The accompanying schedule of expenditures of federal awards is presented for purposes of additional analysis as required by the Uniform Guidance and is not a required part of the basic financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the schedule of expenditures of federal awards is fairly stated in all material respects in relation to the basic financial statements as a whole. Denver, Colorado June 19, 2017 5 City of Fort Collins, Colorado Schedule of Expenditures of Federal Awards Year Ended December 31, 2016 Federal Pass-Through Federal Grantor/ CFDA Entity Identifying Pass-Through to Federal Pass-Through Grantor/Program Title Number Number Subrecipients Expenditures Department of Housing and Urban Development Community Development Block Grants (Direct): Grant Year 2010 / 2011 14.218 B-10-MC-08-0008 $ 7,881 $ 7,881 Grant Year 2013 / 2014 14.218 B-13-MC-08-0008 193,826 193,826 Grant Year 2014 / 2015 14.218 B-14-MC-08-0008 167,162 167,162 Grant Year 2015 / 2016 14.218 B-15-MC-08-0008 515,063 651,481 Grant Year 2016 / 2017 14.218 B-16-MC-08-0008 35,763 74,044 Subtotal 919,695 1,094,394 Home Investment Partnership Programs (Direct): Grant Year 2011 / 2012 14.239 M-11-MC-08-0209 - 548 Grant Year 2012 / 2013 14.239 M-12-MC-08-0209 31,814 31,814 Grant Year 2013 / 2014 14.239 M-13-MC-08-0209 537,780 537,780 Grant Year 2014 / 2015 14.239 M-14-MC-08-0209 741,537 797,870 Grant Year 2015 / 2016 14.239 M-15-MC-08-0209 592,756 604,439 Grant Year 2016 / 2017 14.239 M-16-MC-08-0209 62,077 82,542 Subtotal 1,965,964 2,054,993 Total Department of Housing and Urban Development 2,885,659 3,149,387 Department of Justice (Passed through the Colorado Division of Criminal Justice): Internet Crimes Against Children 16.543 2015-MC-FX-K009 - 7,000 JAG Grant 16.738 2013-DJ-BX-0149 - 49,525 Total Department of Justice - 56,525 Department of Transportation National Highway Traffic Safety Administration (Passed through the Colorado Department of Transportation): DUI Grant 20.601 None - 9,236 Police LEAF Grant 20.601 None - 8,572 Subtotal - 17,808 Seatbelt Grant 20.604 None - 4,178 Total National Highway Traffic Safety Administration - 21,986 Federal Highway Administration (Passed through the Colorado Department of Transportation): FC Bikes - CMAQ 20.205 14 HTD-649742 - 267,094 FTC Biking/Walking Camps 20.205 411010046 - 3,954 Traffic Responsive Signal System 20.205 AQC M455-098 (17573) - 47,021 Regional Air Quality Council 20.205 PO823 - 135,882 Jefferson Street/SH 14 Intersection 20.205 ACQ M455-088 (16525) - 26,545 W Mulberry St Bridge Rprs 20.205 BRO M455-113 (19747) - 328,044 N.College Imprv/Conifer/Wilox 20.205 STE M455-106 (18401) - 1,916,615 Pitkin Low Stress Corridor 20.205 TAP M455-120 (20664) - 111,854 Drake/Shield Intersection Impv 20.205 SHO M455-108 (19059) - 783,109 Shields/Vine Intersection Improvements 20.205 STU M455-108 (18877) - 32,577 N.College Pedestrian Connection 20.205 AQC M455-111 (19561) - 145,020 Total Federal Highway Administration - 3,797,715 (Continued) 6 City of Fort Collins, Colorado Schedule of Expenditures of Federal Awards (Continued) Year Ended December 31, 2016 Federal Pass-Through Federal Grantor/ CFDA Entity Identifying Pass-Through to Federal Pass-Through Grantor/Program Title Number Number Subrecipients Expenditures Department of Transportation (continued) Federal Transit Administration (Cluster) (Formula Grants - Capital 5309) (Direct): Capital 5309 (2010) 20.500 CO-04-0086-00 - 15,370 Section 5339 - 2013 20.500 CO-34-0004-00 - 42,139 Section 5339 - 2014 20.500 CO-2017-010-00 - 248,969 2009 Mason Corridor Small Starts 20.500 CO-03-0206-01 - 273,254 (Urbanized Area Formula Grants - 5307) (Direct): 5307 FY2015 20.507 CO-2017-009-00 - 938,731 5307 FY2016 20.507 1138-2017-2 - 3,078,458 2013 Rides to Wellness - 2013 20.507 CO-16-X048-00 - 87,548 2013 Rides to Wellness - 2014 20.507 CO-16-X049-00 - 5,465 Total Federal Transit Administration (Cluster) - 4,689,934 Total Department of Transportation - 8,509,635 Environmental Protection Agency (Direct) Brownfields Assessment 66.818 96806101 - 149,246 Department of Veterans Affairs (Direct) Veterans Adaptive Sports Grant 64.034 2015-ASG-16 - 13,265 FEMA (Direct) 2016 Mulberry/Riverside Storm 97.039 MG4145061126 - 3,507 2015 G-Flood Warning System 97.039 MG4145016126 - 107,175 Total FEMA - 110,682 Office of National Drug Control Policy (Direct) HIDTA Grant 2016 95.001 G14RM0020A - 95,827 Total Expenditures of Federal Awards $ 2,885,659 $ 12,084,567 See notes to schedule of expenditures of federal awards. City of Fort Collins, Colorado Notes to Schedule of Expenditures of Federal Awards Year Ended December 31, 2016 7 Note 1. Basis of Presentation The accompanying schedule of expenditures of federal awards (the “Schedule”) includes the federal grant activity of the City of Fort Collins, Colorado (the City) and its discretely presented component unit under programs of the federal government for the year ended December 31, 2016. All federal awards received directly from federal agencies, as well as federal awards passed through other governmental entities, are included in the Schedule. The information in this Schedule is presented in accordance with the requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles and Audit Requirements for Federal Awards (Uniform Guidance). Because the Schedule presents only a selected portion of the operations of the City, it is not intended to and does not present the financial position, changes in net position or cash flows of the City. Note 2. Significant Accounting Policies Expenditures of federal awards are recognized in the accounting period when the liability is incurred. Such expenditures are recognized following the cost principles contained OMB Circular A-87, Cost Principles for State, Local and Indian Tribal Governments, or the cost principles contained in the Uniform Guidance, wherein certain types of expenditures are not allowable or are limited as to reimbursement. Pass-through identifying numbers are presented where available. Note 3. Indirect Cost Rate The City elected not to use the 10 percent de minimis indirect cost rate allowed under the Uniform Guidance. 8 City of Fort Collins, Colorado Summary Schedule of Prior Audit Findings Year Ended December 31, 2016 Corrective Action or Number Comment Status Other Explanation None Reported 9 City of Fort Collins, Colorado Schedule of Findings and Questioned Costs Year Ended December 31, 2016 I. Summary of the Independent Auditor's Results Financial Statements Type of auditor's report issued: Unmodified Internal control over financial reporting: . Material weakness(es) identified? Yes No . Significant deficiency(ies) identified? Yes No . Noncompliance material to financial statements noted? Yes No Federal Awards Internal control over major programs: . Material weakness(es) identified? Yes No . Significant deficiency(ies) identified? Yes No Type of auditor's report issued on compliance for major programs: Unmodified . Any audit findings disclosed that are required to be reported in accordance with Section 2 CFR 200.516(a)? Yes No Identification of major programs: CFDA Number Name of Federal Program or Cluster 14.218 Community Development Block Grant (CDBG) - Entitlement Grants 14.239 Home Investment Partnership Program Dollar threshold used to distinguish between type A and type B programs: $750,000 Auditee qualified as low-risk auditee? Yes No (Continued) City of Fort Collins, Colorado Schedule of Findings and Questioned Costs (Continued) Year Ended December 31, 2016 10 II. Findings Related to the Financial Statement Audit as Required to be Reported in Accordance with Generally Accepted Government Auditing Standards A. Internal Control None reported. B. Compliance findings None reported. III. Findings and Questioned Costs for Federal Awards A. Internal Control None reported. B. Instances of Noncompliance None reported. 11 City of Fort Collins, Colorado Corrective Action Plan Year Ended December 31, 2016 Anticipated Current Date Number Comment Corrective Action Plan of Completion Contact Person None reported COUNCIL FINANCE COMMITTEE AGENDA ITEM SUMMARY Staff: Teresa Roche, Joaquin ‘Keen’ Garbiso Date: July 11, 2017 SUBJECT FOR DISCUSSION 2017 Benefit and Market Review EXECUTIVE SUMMARY (a brief paragraph or two that succinctly summarizes important points that are covered in more detail in the body of the AIS.) As a follow-up from last year’s council finance committee presentation, we will review additional data illustrating our market competitiveness among our public sector peers and private survey data. We will also review our benefit costs specific to our reserves and provide a roadmap into 2019. GENERAL DIRECTION SOUGHT AND SPECIFIC QUESTIONS TO BE ANSWERED (Work session questions should be designed to gather direction from Council without requiring Councilmembers to make a decision.) 1. What questions does CFC have about our market driven benefits? BACKGROUND/DISCUSSION (details of item – History, current policy, previous Council actions, alternatives or options, costs or benefits, considerations leading to staff conclusions, data and statistics, next steps, etc.) All background information is contained in the attachments and will be discussed in detail during the meeting ATTACHMENTS (numbered Attachment 1, 2, 3,…) Attachment 1: CFC: Benefits Review 1 Council Finance Committee: Benefits Review July 11, 2017 Agenda 2 • Follow-up: Market Competitiveness • Reserve Update • Options for 2018 • Marathon Health Update 3 • Medical plan updates • Plan design changes (co-insurance and Rx copays) • Increase in premium cost share (10.5%) • Partnership with HUB International • Data Analytic tool via Innovu • Pharmacy Benefit Manager switch to RxBenefits from OptumRx • Decreased pharmacy costs (e.g. claims) • Increased pharmacy rebates ($228K v. $750K) • Projected annual savings ~$700K+ • CityCare: Redirected Care • Retirement Governance Committee • Fiduciary compliance Changes in 2017 What does ‘Market’ mean? Key factors: • Public v. Private • Plan design (e.g. deductibles, out-of-pocket maximum, co- pays, etc.) • Premiums • Employer and employee cost share data 4 5 Mercer Benchmarking Data Ft. Collins Mercer - 2016 Survey Mercer - 2016 Survey * YTD through April 2017 Current Plan ER's 1,000 - 4,999 EE's Industry: Government ER's 1,000 - 4,999 EE's Industry: Government PPO PPO PPO HDHP HDHP Avg. Annual Plan Cost per EE: $12,665* $12,212 $13,342 $9,588 $10,961 Deductible: Single / Family $300 / $600 $600 / $1,500 $500 / $1,000 $1,750 / $3,600 $2,000 / $4,200 Out of Pocket Max: Single / Family $5,000 / $10,000 $3,000 / $6,600 $2,500 / $5,000 $4,000 / $7,200 $3,000 / $6,000 In-Network Coinsurance: 80% 80% 80% 80% 80% OV Copay: PCP $20 $25 $25 Specialist (when separate) $30 $40 $40 Emergency Room: $200 $150 $150 Prescription Drugs: Avg Copay $5 / $30 / $50 $11 / $33 / $57 / $114 $10 / $29 / $49 / $131 Employee Premium: Single 13% / $85.98 25% / $133 13% / $83 19% / $83 10% / $47 Family 29% / $527.79 31% / $463 24% / $349 25% / $315 21% / $248 HSA Contribution: % ER's Contribute 74% 80% Avg $, Single/Family $500 / $1,000 $600 / $1,000 6 MSEC Benchmarking Data City of Ft. Collins MSEC - 2016 Survey * YTD through April 2017 Current Plan Area: Northern Colorado Industry: Government Healthcare Cost per EE: $12,665* $11,498 $13,216 PPO PPO PPO Deductible: Single / Family $300 / $600 $1,080 / $2,730 $1,160 / $2,810 Out of Pocket Max: Single / Family $5,000 / $10,000 $3,640 / $7,670 $3,840 / $7,990 In-Network Coinsurance: 80% 80% 80% OV Copay: PCP $20 $45 $30 Emergency Room Copay: $200 $415 $330 Prescription Drugs: Avg Copay $5 / $30 / $50 $12 / $33 / $56 / $235 $13 / $34 / $57 / $188 Employee Premium: Single 13% / $86 21% / $131 16% / $97 Employee + Spouse 29% / $415 34% / $421 25% / $314 Empoyee + Child(ren) 29% / $339 33% / $369 25% / $272 Family 29% / $528 36% / $628 27% / $455 7 Surveyed 15 Public Employers • 42 total medical plans • All offer multiple plan options • Larimer County, Poudre School District, Loveland & CSU Public Market Tier Total Premium ER Cost EE Cost ER Share EE Share AVERAGE EE $623 $539 $84 87% 13% 42 Plans SP/DUAL $1,262 $968 $298 76% 24% CH $1,241 $961 $289 77% 24% FAM $1,778 $1,344 $443 75% 26% Ft. Collins EE $649 $563 $86 87% 13% UMR PPO SP $1,427 $1,012 $415 71% 29% CH $1,167 $828 $339 71% 29% FAM $1,816 $1,288 $528 71% 29% Difference via Average EE $25 $23 $2 0% 0% SP $165 $44 $117 (5%) 5% CH ($73) ($133) $50 (6%) 5% FAM $38 ($56) $85 (4%) 3% 8 Are we Market Competitive? Fort Collins Plan Design Premium Single (13%) Premium Spouse (29%) Premium Child(ren) (29%) Premium Family (29%) Cost/Claim Share Public + In Market - 5% - 5% - 3% In Market Private + + 8% to 12% + 5% + 4% + 4% In Market 9 Reserve Update 2M Reserve Shortfall • 2-3 year plan strategy (recouping cost) • Providing 3 premium/plan options • Projected Stop Loss Renewal • Positive claim experience 30% of Annual Medical and Dental Expenses • For 2017: $23M • Reserve minimum: $6.5M • Actual Reserve: $4.9M • Under Reserve: $1.6M What attributed to the under reserve • Incidence of high cost claimants • Medical/Pharmacy trends • Specialty pharmacy cost • Plan design: One plan Options for re-funding reserves • Premium cost share • Plan design updates (redirected care) • Positive claim experience • Evaluation our reserve methodology 10 • Benefits Administration Committee (BAC) • Option for 2 Health Plans (re-visit for 2019) • High Deductible Health Plan with Health Savings Account • Expand Benefit and Wellness strategies & programs • Marathon Health Capabilities • Explore partnership with Larimer & Loveland • Life and Disability Plan Review • Absent Management • Personalized Benefits • Review IGA’s (administration, cost, resources) • Flexible Spending Account RFP • On-site pharmacy options • Retirement Savings options (HSA, RHS, PEHP, VEBA) On the Horizon 11 Marathon Health: CityCare • Currently at 98% capacity • 36% engagement (4/2017) • 55% engagement of high & chronic population (4/2017) • 93% patient satisfaction (2016) Patient Diagnoses - Top 20 Description Total Persons encountering health services for other counseling and medical advice, not elsewhere classified 40 Encounter for general examination without complaint, suspected or reported diagnosis 30 Encounter for screening for other diseases and disorders 30 Acute upper respiratory infections of multiple and unspecified sites 21 Body mass index [BMI] 15 Essential (primary) hypertension 14 Vasomotor and allergic rhinitis 13 Abnormal results of function studies 11 Acute sinusitis 10 Disorders of lipoprotein metabolism and other lipidemias 9 Acute pharyngitis 9 Acute bronchitis 9 Malaise and fatigue 9 Other anxiety disorders 8 Type 2 diabetes mellitus 6 Major depressive disorder, single episode 6 Acute nasopharyngitis [common cold].. 6 Asthma 6 Other noninflammatory disorders of vagina 5 Abnormal blood-pressure reading, without diagnosis 5 All Other 170 Total 432 Volume Trend By Type Month Coaching Acute Telep Labs/Other Total May 2016 99 145 28 145 417 June 2016 77 134 19 76 306 July 2016 46 99 6 36 187 August 2016 60 165 1 69 295 September 2016 80 159 0 100 339 October 2016 110 104 0 176 390 November 2016 122 154 0 143 419 December 2016 102 175 0 75 352 January 2017 133 196 3 115 447 February 2017 148 167 9 82 406 March 2017 209 134 8 130 481 April 2017 138 137 4 109 388 Total 1,324 1,769 78 1,256 4,427 Thank you 12 COUNCIL FINANCE COMMITTEE AGENDA ITEM SUMMARY Staff: Travis Storin, Accounting Director John Voss, Controller Date: July 11, 2017 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 aid in answering the question of 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. Appropriated, Minimum Policy or Scheduled is comprised of minimum fund balances established by policy, funds from the 2016 balance that have been included in the 2017-2018 budget, and amounts for projects specifically identified by voters. An example of the latter is Community Capital Improvements Plan Available with Constraints are those balances available for appropriation but within defined constraints. An example is 4 th 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. ATTACHMENTS PowerPoint presentation Status of Fund Balances Travis Storin, Accounting Director John Voss, Controller 7-11-2017 Objectives • Types of constraints • Availability of restricted balances • Review fund balances • Using fund balances in the budget process 2 Fund Balance Definitions Non-spendable • Non-liquid in form (inventory, long-term receivables) • Legally or contractually required to be maintained intact (permanent endowments) Restricted • Externally enforceable legal restrictions (TABOR emergency reserve, debt covenants, re-development agreements, IGA’s) Committed • Constraint formally imposed at the highest level of decision making authority through Ordinance (Capital Expansion fees, Neighborhood Parkland fees) Assigned • Intended to be used for specific purposes (Affordable Housing, Camera Radar, Encumbrances) Unassigned • Available for any City purpose • Reported only in the General Fund except in cases of negative fund balance most constrained least constrained 3 Use of restricted balances Available but with some constraints • Keep Fort Collins Great (KFCG) categories are restricted but available as defined in the ballot language • Udall Endowment interest is restricted but available to be appropriated for maintenance and improvements of Udall Natural Area Available for nearly any purpose • Funds available at the discretion of the City Council for any municipal purpose 4 5 2015 2016 Total Appropriated, Min. Policy, or Scheduled Available but with some Constraints Available for Nearly Any Purpose * General Fund $ 72.4 $ 74.9 $ 60.1 $ 1.7 $ 13.1 * Capital Expansion Fund 22.9 21.1 11.8 9.3 - Sales & Use Tax Fund 3.7 1.2 1.2 - - GID #1 Fund 0.4 0.6 0.2 0.4 - * Keep Fort Collins Great Fund 16.8 15.4 9.5 6.3 (0.4) * Community Capital Imprvmt Plan - 6.8 6.1 0.7 - * Neighborhood Parkland Fund 8.4 10.2 9.2 1.0 - Conservation Trust Fund 2.0 2.5 1.7 0.8 - * Naturals Areas Fund 13.5 16.0 2.5 13.5 - Cultural Services Fund 1.9 2.4 1.4 1.0 - * Recreation Fund 3.0 2.7 1.3 1.4 - Cemeteries Fund 0.6 0.6 - 0.6 - Perpetual Care Fund 1.8 1.8 - 1.8 - Museum Fund 1.0 0.9 - 0.9 - * Transit (0.3) (1.8) - - (1.8) * Street Oversizing 16.8 19.6 1.9 17.7 - * Transportation 17.1 17.6 6.1 - 11.5 Parking Fund 1.5 1.5 0.1 0.7 0.7 Capital Projects Fund 25.8 19.9 17.5 2.4 - Golf Fund 0.5 0.5 0.8 - (0.3) * Light & Power Fund 51.4 36.8 30.1 6.7 - * Water Fund 61.5 52.1 44.0 8.1 - * Wastewater Fund 35.5 40.6 26.8 13.8 - * Storm Drainage Fund 22.0 18.1 13.3 4.8 - Equipment Fund 2.2 4.6 1.2 3.4 - Self Insurance Fund 1.7 1.6 1.2 0.4 - Data & Communications Fund 1.8 4.1 2.7 - 1.4 * Benefits Fund 5.4 4.9 6.5 (1.6) - Utility Customer Service Fund 0.3 2.0 0.6 1.4 - TOTAL $ 391.6 $ 379.2 $ 257.8 $ 97.2 $ 24.2 All City Funds 2015 Total 2016 Total Appropriated, Min. Policy, or Scheduled Available but with some Constraints Available for Nearly Any Purpose Assigned - Minimum 60 day Policy $ 22.7 $ 25.8 $ 25.8 $ - $ - Non-spendable Advances 5.2 5.1 5.1 - - Landbank inventory 1.8 1.8 1.8 - - Restricted TABOR Emergency 6.4 6.7 6.7 - - Police Programs 1.0 0.8 0.3 0.5 - Donations & Misc 0.7 0.8 0.1 0.7 - Economic Rebates 3.3 3.0 3.0 - - DDA/Woodward Debt 2.3 2.3 2.3 - - Committed Traffic Calming 0.3 0.2 - 0.2 - Culture & Recreation 0.2 0.3 - 0.3 - Assigned Prior Year Purchase Orders 3.3 4.2 4.2 - - Manufacturing Use Tax Rebate 2.3 0.7 0.7 - - Budgeted use of reserves 5.2 5.9 5.9 - - Council Priorities set aside 3.3 3.3 1.5 - 1.8 Recession Contingency 4.4 4.4 - - 4.4 Camera Radar 0.8 1.1 - - 1.1 Affordable Housing Land Bank 0.2 0.3 - - 0.3 Waste Innovation 0.2 0.2 - - 0.2 Reappropriation 1.1 1.3 1.3 - - Unassigned 7.7 6.7 1.4 - 5.3 Year End Total $ 72.4 $ 74.9 $ 60.1 $ 1.7 $ 13.1 General Fund - Year End 2016 - $74.9 6 $1.0M Police Facility Design $500K Police CAD System $500K Transit Bus Replacement $500K Southridge Golf Irrigation $750K On-street Pay Parking Meters General Fund Balances • $5.1 loaned to URA (Advances) • $1.8 Land-bank program, estimated market value • $6.7 is an emergency reserve required by TABOR, equal to 3% of qualified governmental revenue • $0.8 restricted to Police Programs for Drug Task Force • $0.7 restricted by donor for various purposes (Horticulture, Udall Endowment, etc) • $3.0 is restricted to Economic Incentive Rebates • $2.3 is for debt contingency on DDA debt obligation to Woodward • Traditionally fund balances are assigned for camera radar and photo red-light, public safety dispatch system, affordable housing and waste innovation • $1.3 is set aside for the re-appropriation process 7 • Monies collected on building permits, revenue varies greatly with development activity • Must be used for new and/or expanding facilities • $2.7 in loans to the URA (RMI2) in General Government • Police monies used for debt on new police headquarters • Fire monies used to pay debt on Station #4 • $2.3 is for remaining two planned Community Parks (East and Northeast) 8 2015 Total 2016 Total Appropriated, Min. Policy, or Scheduled Available but with some Constraints Available for Nearly Any Purpose Committed General Government 8.5 9.7 2.7 7.0 Police 0.8 0.9 0.9 - Fire 1.1 1.7 1.7 - Community Parkland 12.5 8.8 6.5 2.3 Year End Total $ 22.9 $ 21.1 $ 11.8 $ 9.3 $ - Capital Expansion Fund - Year End 2016 - $21.1 • Sales Tax for Natural Areas deposited here according to ballot language – Residual balance of $1.2M owed to Natural Areas. 2016 revenue exceeded appropriations needed to make transfers. – Will be addressed in annual year end adjustment ordinance in September 2017. 9 2015 Total 2016 Total Appropriated, Min. Policy, or Scheduled Available but with some Constraints Available for Nearly Any Purpose Restricted - BOB 1.8 - - - Natural Areas 1.9 1.2 1.2 - Year End Total $ 3.7 $ 1.2 $ 1.2 $ - $ - Sales & Use Tax Fund - Year End 2016 - $1.2 • Property tax based - 4.924 mill levy generates about $240k annually 10 2015 Total 2016 Total Appropriated, Min. Policy, or Scheduled Available but with some Constraints Available for Nearly Any Purpose Committed Capital Improvements 0.4 0.6 0.2 0.4 Year End Total $ 0.4 $ 0.6 $ 0.2 $ 0.4 $ - General Improvement District #1 Fund - Year End 2016 - $0.6 • $6.3M can be made available in the 2018 revision process and/or the 2019-2020 BFO process • Accounting and Budget teams are researching balances in Other Transportation and Other 11 2015 Total 2016 Total Appropriated, Min. Policy, or Scheduled Available but with some Constraints Available for Nearly Any Purpose Restricted Street Maintenance 4.7 4.0 0.3 3.7 Other Transportation 3.1 2.2 2.5 - (0.3) Police Services 3.5 4.0 2.4 1.6 Fire & Emergency Services 0.8 0.6 - 0.6 Parks & Recreation 1.6 1.8 1.4 0.4 Other 3.1 2.8 2.9 - (0.1) Year End Total $ 16.8 $ 15.4 $ 9.5 $ 6.3 $ (0.4) Keep Fort Collins Great Fund - Year End 2016 - $15.4 2015 Total 2016 Total Appropriated, Min. Policy, or Scheduled Available but with some Constraints Available for Nearly Any Purpose Restricted Available for ballot projects - 0.7 - 0.7 City Park Train - 0.4 0.4 - Club Tico Renovation - 0.2 0.2 - Nature in the City - 0.2 0.2 - Affordable Housing Fund - 0.2 0.2 - Arterial Intersection Imprvmnt - 0.3 0.3 - Bicycle Infrastructure Imprvmt - 0.3 0.3 - Bike/Ped Grade Separated Cross - 1.5 1.5 - Bus Stop Improvements - 0.1 0.1 - Lincoln Avenue Bridge - 2.9 2.9 - Year End Total $ - $ 6.8 $ 6.1 $ 0.7 $ - Community Capital Improvement Plan - Year End 2016 - $6.8 • Project-by-project amounts represent unspent funds already appropriated 12 • $1.0 is for future neighborhood parks 13 2015 Total 2016 Total Appropriated, Min. Policy, or Scheduled Available but with some Constraints Available for Nearly Any Purpose Committed Neighborhood Parks 8.4 10.1 9.1 1.0 Assigned Prior Year Purchase Orders - 0.1 0.1 - Year End Total $ 8.4 $ 10.2 $ 9.2 $ 1.0 $ - Neighborhood Parkland Fund - Year End 2016 - $10.2 • City has primarily used these monies for trails 14 2015 Total 2016 Total Appropriated, Min. Policy, or Scheduled Available but with some Constraints Available for Nearly Any Purpose Restricted Parks, Rec & Open Space Capital Improvements 2.0 2.5 1.7 0.8 Year End Total $ 2.0 $ 2.5 $ 1.7 $ 0.8 $ - Conservation Trust Fund - Year End 2016 - $2.5 • Major funding sources – About 60% comes from City quarter cent sales tax, expires at end of 2030 – About 30% comes from County Open Space tax, expires at end of 2043 • Revenue sharing to municipalities will drop from 58% to 50% beginning in 2019 • $9.5 to be appropriated in 2017 for potential land purchases 15 2015 Total 2016 Total Appropriated, Min. Policy, or Scheduled Available but with some Constraints Available for Nearly Any Purpose Restricted Natural Areas 12.2 15.4 1.9 13.5 Assigned Prior Year Purchase Orders 0.6 - - - Capital Projects 0.7 0.6 0.6 - Year End Total $ 13.5 $ 16.0 $ 2.5 $ 13.5 $ - Natural Areas Fund - Year End 2016 - $16.0 2015 Total 2016 Total Appropriated, Min. Policy, or Scheduled Available but with some Constraints Available for Nearly Any Purpose Restricted Opera Donation - 0.1 - 0.1 Committed Art in Public Places 0.4 0.5 0.2 0.3 Assigned Prior Year Purchase Orders 0.1 - - - Cultural Services Surplus 1.4 1.8 1.2 0.6 Year End Total $ 1.9 $ 2.4 $ 1.4 $ 1.0 $ - Cultural Services & Facilities Fund - Year End 2016 - $2.4 16 2015 Total 2016 Total Appropriated, Min. Policy, or Scheduled Available but with some Constraints Available for Nearly Any Purpose Assigned Prior Year Purchase Orders 0.1 - - - Recreation Programs 0.3 0.2 - 0.2 Recreation Surplus 2.6 2.5 1.3 1.2 - Year End Total $ 3.0 $ 2.7 $ 1.3 $ 1.4 $ - Recreation Fund - Year End 2016 - $2.7 17 18 2015 Total 2016 Total Appropriated, Min. Policy, or Scheduled Available but with some Constraints Available for Nearly Any Purpose Assigned Cemeteries Surplus 0.6 0.6 - 0.6 Year End Total $ 0.6 $ 0.6 $ - $ 0.6 $ - Cemeteries Fund - Year End 2016 - $0.6 2015 Total 2016 Total Appropriated, Min. Policy, or Scheduled Available but with some Constraints Available for Nearly Any Purpose Restricted Perpetual Care 1.8 1.8 - 1.8 Year End Total $ 1.8 $ 1.8 $ - $ 1.8 $ - Perpetual Care Fund - Year End 2016 - $1.8 • To be used to maintain the cemeteries once on-going operations cease 19 20 2015 Total 2016 Total Appropriated, Min. Policy, or Scheduled Available but with some Constraints Available for Nearly Any Purpose Assigned Capital Projects - - - - Cultural Services Surplus 1.0 0.9 - 0.9 Year End Total $ 1.0 $ 0.9 $ - $ 0.9 $ - Museum Fund - Year End 2016 - $0.9 • Deficit is result of FTA-authorized pre-award spending against 2015 and 2016 grants in anticipation of grant drawdowns not fully finalized until 2017. • 2015 and 2016 grants will be closed out by year-end 2017, bringing this fund balance back to surplus • Staff will revise the timing of grant applications in order to eliminate negative fund balances at year-end 21 2015 Total 2016 Total Appropriated, Min. Policy, or Scheduled Available but with some Constraints Available for Nearly Any Purpose Assigned Prior Year Purchase Orders - - - - Transit Surplus(Deficit) (0.3) (1.8) - - (1.8) Year End Total $ (0.3) $ (1.8) $ - $ - $ (1.8) Transit Fund - Year End 2016 - ($1.8) 22 Transfort 2017 Budgeted Revenues Federal Grants 25% 23 Problems • In the past Transfort has received award dates on grants in the first quarter of the next year. • This process has caused Transfort to have a negative fund balance at the end of the year. • As the transit system grows the negative fund balance has begun to amplify. Process Improvements: • Transfort is proposing to apply for partial grant awards earlier and begin grant drawdowns prior to February 28th of the following year to minimize negative fund balance throughout the year. • Transfort is proposing to drawdown grants on a monthly basis instead of the current practice of drawing down grants quarterly. Federal Grant Awards Problems & Improvements 24 • Fares & Fees • General Fund • KFCG Fund • Advertising Fees • ½ CSU & ASCSU Fee • Fares & Fees • Fares & Fees • Flex Billing • ½ CSU & ASCSU Fee • FASTER Grant • Federal 7/12 Apportionment • Fares & Fees • General Fund • KFCG Fund • Advertising Fees • Fares & Fees • Bohemian Foundation Donation • Obligate Federal Grants & Drawdown 2017 2017 2017 2017 2018 Applying for full Federal Apportionment in Q4 Applying for 7/12 Apportionment in Q2-Q3 36% 1% 6% 35% 24% ($4.8M) 2017 Revenue & Grant Schedule 36% 1% 20% 35% 11% ($2M) 25 Applying for Federal Funds (3 to 5 month process) 1. Public Hearing for POP 2. TIP Amendments (Can be done every other month) 3. STIP Amendments (Can take up to 30 days) 4. Draft Grant / Informal FTA review 5. FTA Initial Review / Concurrence (Can take up to 30 days) 6. Receive FTA comments 7. Update Application 8. Submit Application to FTA 9. FTA Final Review (Can take up to 30 days) 10. Grant award 26 Federal Grants to Apply For Grant Fiscal Year FTA Funding Pending Grant Drawdown Anticipated Grant Award 5339 - Bus & Bus Facilities Formula Grant 2015 $443,528 4th quarter 2017 5310 - Enhanced Mobility for Seniors & Individuals with Disabilities 2015 $179,589 4th quarter 2017 5307 - Urbanized Area Formula Grant 2016 $4,168,113 $4,062,968 6/29/17 5339 - Bus & Bus Facilities Formula Grant 2016 $387,891 4th quarter 2017 5310 - Enhanced Mobility for Seniors & Individuals with Disabilities 2016 $189,213 4th quarter 2017 7/12 Appropriation 5307 - Urbanized Area Formula Grant 2017 $2,541,484 4th quarter 2017 7/12 Appropriation 5339 - Bus & Bus Facilities Formula Grant 2017 $223,504 4th quarter 2017 7/12 Appropriation 5310 - Enhanced Mobility for Seniors & Individuals with Disabilities 2017 $109,858 4th quarter 2017 Total $8,243,180 Current Grant Application Status 2015 Total 2016 Total Appropriated, Min. Policy, or Scheduled Available but with some Constraints Available for Nearly Any Purpose Restricted Street Oversizing Surplus 14.8 17.7 - 17.7 Assigned Capital Projects 2.0 1.9 1.9 - Year End Total $ 16.8 $ 19.6 $ 1.9 $ 17.7 $ - Street Oversizing Fund - Year End 2016 - $19.6 • Now known as Transportation Capital Expansion Fee – qualified expenses are limited to the oversized portion of collector and arterial streets 27 • $5.2M may be reassigned but is intended to be used for Harmony Road improvements. – Residual of the $13 million from State when ownership transferred to City • $6.3M can be made available in the 2018 revision process and/or the 2019-2020 BFO process 28 2015 Total 2016 Total Appropriated, Min. Policy, or Scheduled Available but with some Constraints Available for Nearly Any Purpose Restricted - Fiscal Agent 0.1 - - - Assigned - Prior Year Purchase Orders 0.6 0.9 0.9 - Capital Projects 1.1 0.6 0.6 - Harmony Road 5.7 5.7 0.5 - 5.2 Transportation Surplus 9.6 10.4 4.1 - 6.3 Year End Total $ 17.1 $ 17.6 $ 6.1 $ - $ 11.5 Transportation Fund - Year End 2016 - $17.6 29 2015 Total 2016 Total Appropriated, Min. Policy, or Scheduled Available but with some Constraints Available for Nearly Any Purpose Restricted - CC Parking Garage IGA 0.9 0.7 - 0.7 Assigned - Prior Year Purchase Orders 0.2 0.1 0.1 - DT Parking 0.4 0.7 - - 0.7 Available for capital and operations - - - - Year End Total $ 1.5 $ 1.5 $ 0.1 $ 0.7 $ 0.7 Parking Fund - Year End 2016 - $1.5 • $0.7M available for future budget offers • Building on Basics (BOB) is expected to have $2.4M available for capital projects, after the projects on the original ballot are completed 30 2015 Total 2016 Total Appropriated, Min. Policy, or Scheduled Available but with some Constraints Available for Nearly Any Purpose Restricted - Building Community Choices (BCC) 2.4 1.6 1.6 - Building on Basics (BOB) 9.7 7.2 4.8 2.4 Misc. projects 1.1 1.3 1.3 - Woodward Loan Proceeds left - 0.3 0.3 - Donations and Grants (7) - 1.0 1.0 - Committed - General Fund Supported Projects 12.6 8.5 8.5 - Year End Total $ 25.8 $ 19.9 $ 17.5 $ 2.4 $ - Capital Project Fund - Year End 2016 - $19.9 • Policy Minimum of 25% is applicable to all enterprise funds (Golf + Utilities) • City Staff is considering a recommendation to adjust this policy minimum in the case of golf; currently on Council Finance agenda for August 31 2015 Total 2016 Total Appropriated, Min. Policy, or Scheduled Available but with some Constraints Available for Nearly Any Purpose Minimum Policy - 25% Operations $ 0.7 $ 0.7 $ 0.7 $ - Assigned Prior Year Purchase Orders 0.1 0.1 0.1 - Available for capital and operations (0.3) (0.3) - - (0.3) Year End Total $ 0.5 $ 0.5 $ 0.8 $ - $ (0.3) Golf Fund - Year End 2016 - $0.5 • Large capital asset purchases in 2016 drove decrease to working capital - $23M in purchases in 2016 vs. $14M in 2015 32 2015 Total 2016 Total Appropriated, Min. Policy, or Scheduled Available but with some Constraints Available for Nearly Any Purpose Minimum Policy - 25% Operations $ 8.1 $ 6.7 $ 6.7 $ - Assigned Prior Year Purchase Orders 1.5 1.4 1.4 Approved Capital Projects 17.2 7.9 7.9 Budgeted Projects 2017-18 14.1 14.1 Available for capital and operations 24.6 6.7 - 6.7 Year End Total $ 51.4 $ 36.8 $ 30.1 $ 6.7 $ - Light & Power Fund - Year End 2016 - $36.8 2015 Total 2016 Total Appropriated, Min. Policy, or Scheduled Available but with some Constraints Available for Nearly Any Purpose Minimum Policy - 25% Operations $ 5.2 $ 5.1 $ 5.1 $ - Restricted - Debt 0.3 0.3 0.3 - Assigned Prior Year Purchase Orders 0.5 0.4 0.4 Approved Capital Projects 37.4 36.5 36.5 Budgeted Projects 2017-18 - 1.7 1.7 - Available for capital and operations 18.1 8.1 - 8.1 Year End Total $ 61.5 $ 52.1 $ 44.0 $ 8.1 $ - Water Fund - Year End 2016 - $52.1 • Similar to Light & Power, Water spent heavily on capital asset acquisition in 2016; $24M in 2016 vs. $12M in 2015 33 2015 Total 2016 Total Appropriated, Min. Policy, or Scheduled Available but with some Constraints Available for Nearly Any Purpose Minimum Policy - 25% Operations $ 3.2 $ 3.1 $ 3.1 $ - Restricted - Debt 0.2 0.2 0.2 - Assigned - Prior Year Purchase Orders 0.4 0.7 0.7 - Approved Capital Projects 9.6 14.7 14.7 - Budgeted Projects 2017-18 - 8.1 8.1 - Available for capital and operations 22.1 13.8 - 13.8 Year End Total $ 35.5 $ 40.6 $ 26.8 $ 13.8 $ - Wastewater Fund - Year End 2016 - $40.6 34 2015 Total 2016 Total Appropriated, Min. Policy, or Scheduled Available but with some Constraints Available for Nearly Any Purpose Minimum Policy - 25% Operations $ 1.4 $ 1.4 $ 1.4 $ - Restricted Debt 0.3 0.3 0.3 - Assigned Prior Year Purchase Orders 0.1 0.1 0.1 - Approved Capital Projects 16.1 8.3 8.3 - Budgeted Projects 2017-18 - 3.2 3.2 - Available for capital and operations 4.1 4.8 - 4.8 Year End Total $ 22.0 $ 18.1 $ 13.3 $ 4.8 $ - Storm Drainage Fund - Year End 2016 - $18.1 35 • Equipment Replacement – $3.4M is for replacement of vehicles and equipment for Police, Forestry, Parks, Building Inspection, and Code Compliance 36 2015 Total 2016 Total Appropriated, Min. Policy, or Scheduled Available but with some Constraints Available for Nearly Any Purpose Minimum Policy - 8.3% Operations $ 0.7 $ 0.6 $ 0.6 $ - Assigned - Prior Year Purchase Orders 0.3 0.1 0.1 - Equipment surplus 1.2 3.9 0.5 3.4 - Year End Total $ 2.2 $ 4.6 $ 1.2 $ 3.4 $ - Equipment Fund - Year End 2016 - $4.6 • Loss fund reserves have declined significantly over the last 7 years due to a major settlement and planned use of reserves 37 2015 Total 2016 Total Appropriated, Min. Policy, or Scheduled Available but with some Constraints Available for Nearly Any Purpose Minimum Policy - 25% Operations $ 1.0 $ 1.1 $ 1.1 $ - Committed - Self Insurance surplus 0.5 0.4 - 0.4 Assigned - Prior Year Purchase Orders 0.2 0.1 0.1 - Year End Total $ 1.7 $ 1.6 $ 1.2 $ 0.4 $ - Self Insurance Fund - Year End 2016 - $1.6 38 2015 Total 2016 Total Appropriated, Min. Policy, or Scheduled Available but with some Constraints Available for Nearly Any Purpose Assigned Prior Year Purchase Orders 0.3 0.5 0.5 - Data & Communication Surplus 1.5 3.6 2.2 - 1.4 Year End Total $ 1.8 $ 4.1 $ 2.7 $ - $ 1.4 Data and Communications Fund - Year End 2016 - $4.1 • This fund does not meet policy minimums • HR staff to present at Council Finance on the strategy for the long-term health of the fund • Both City and employees experienced a significant rate increase to benefits in 2016 open enrollment as part of the recovery strategy for this fund • Preliminary 2017 results through May are positive 39 2015 Total 2016 Total Appropriated, Min. Policy, or Scheduled Available but with some Constraints Available for Nearly Any Purpose Policy minimum - 30% Operations $ 5.8 $ 6.5 $ 6.5 $ - Assigned - Benefit Surplus (0.4) (1.6) - (1.6) - Year End Total $ 5.4 $ 4.9 $ 6.5 $ (1.6) $ - Benefits Fund - Year End 2016 - $4.9 40 2015 Total 2016 Total Appropriated, Min. Policy, or Scheduled Available but with some Constraints Available for Nearly Any Purpose Assigned - Prior Year Purchase Orders 0.5 0.6 0.6 - Unrestricted (0.2) 1.4 1.4 Year End Total $ 0.3 $ 2.0 $ 0.6 $ 1.4 $ - Utility Customer Service Fund - Year End 2016 - $2.0 COUNCIL FINANCE COMMITTEE AGENDA ITEM SUMMARY Staff: Helen Matson, Real Estate Services Manager Kerri Allison, Real Estate Specialist II Sue Beck-Ferkiss, Social Sustainability Specialist Date: July 11, 2017 SUBJECT FOR DISCUSSION Sherwood House Transaction – Staff’s proposal to grant a lease to Faith Family Hospitality (“FFH”) with an option to purchase the property for $70,000. We are proposing a lease rate of $300 a year or $25 per month. EXECUTIVE SUMMARY (a brief paragraph or two that succinctly summarizes important points that are covered in more detail in the body of the AIS.) The City purchased two buildings in the 1980’s at 317 and 321 S. Sherwood. These properties were purchased for facility for victims of domestic abuse. The funding for these purchases came from CDBG funding. Crossroads operated at this site for over 30 years and they moved in 2011. City staff reached out to the public through neighborhood meetings. The response from the neighborhood was generally in favor of keeping the asset and uses it to help the homeless. Staff proceeded and chose a non-profit to use the facility as the neighborhood had desired. Faith Family Hospitality has completed the development review process and we are preparing to take the lease to Council for their acceptance. The proposed lease includes an option to purchase the facility. GENERAL DIRECTION SOUGHT AND SPECIFIC QUESTIONS TO BE ANSWERED (Work session questions should be designed to gather direction from Council without requiring Councilmembers to make a decision.) The direction we are looking for from the Finance Committee is to see if the Committee generally agrees with staff and the direction outlined below. BACKGROUND/DISCUSSION (details of item – History, current policy, previous Council actions, alternatives or options, costs or benefits, considerations leading to staff conclusions, data and statistics, next steps, etc.) When the building became vacant, the City needed to hold onto the property for at least three years. That requirement came out of CDBG loans granted for this property over the years. CDBG has a requirement that properties that have received loans cannot be disposed until three years following the last payment on loans. If not followed, the owner would need to pay back all loans awarded on the property over the years. When this time period was getting close, Staff followed a public process to identify a potential tenant for the Property. We started with our initial Neighborhood Listening Session in 2014. Neighbors within a 1,000 foot boundary as well as non-profit organizations were invited. The City team spent time investigating the property and its condition. We moved forward with an open house and tour, a survey to all interested organizations. The survey included the question of what was needed from the City to proceed. Most organizations needed quite a bit of support from the City to proceed. We followed up with one question, “Would you be interested in a low- cost lease with your organization being responsible for all maintenance?” We had one positive answer and that was Faith Family Hospitality. Faith Family Hospitality supports families experiencing homelessness to achieve sustainable self-sufficiency in a timely and dignified manner. They are currently running their program using many area churches. The ability to rent this facility allows them to help more families transition out of homelessness. All participants must successfully complete the FFH emergency shelter program, they must have an income but not enough to rent a home for themselves. The goal is to successfully transition these families into obtaining and maintaining housing. Since our selected tenant will be responsible for all costs associated with the property, they wanted to have the ability to purchase the site at a later date. To identify a value of the property the City acquired an appraisal of this property in 2016. Our direction to the appraiser was to value the property “as is” as to its highest and best use and to value the land only value. This is a unique situation – we have two homes that have been combined, we have a very large two-story addition on the south house and it encompasses two parcels. The appraiser (Foster Valuation) concluded that the highest and best use of this property was to use it as a group home. Foster concluded that the existing structures had value and would be used more efficiently as a group home, with a value of $1,160,000. The value assigned for the land alone is $500,000. Staff used this information to calculate a proposed purchase price for FFH. There are some issues with the value as assigned. This value takes into account the improvements and the potential use, but it did not calculate what it would take to get the improvements ready for occupation. If we were to offer this property for sale on the open market, there is not a lot of interest for group homes and the number allowed would be dictates by the development review process. The value of the land alone is set at $500,000. It would be more likely that a potential purchaser would want to separate the structures. There is a cost to separate the properties. Staff has estimated that the cost to separate homes would cost at least $300,000. Factors considered when establishing the value included the potential costs to FFH to get their program ready which includes testing the building systems and potential asbestos issues. Changes in their design eliminated disturbing asbestos. They also have encountered have engineering costs for studying the flow of the alley, they will contribute $45,000 for paving the alley and the City will pay the remainder. They are also required to pave the required employee parking lot. The purchase price we have established is $700,000. The breakdown is: $1,160,000 appraised value of property -250,000 FFH upfront investment (this is an at least cost and will probably be more) -210,000 Value of City’s contribution to the community $ 700,000 Purchase Option Price The lease term we are proposing is at least five years at a rental rate of $300/year. Included in the Lease Agreement, we will include the option to purchase. If FFH does purchase this property, the City will have a deed restriction that the property be used for a public purpose, such as affordable housing for special needs populations. The use of this property by FFH benefits the community by providing a needed service – transitional housing for families and the use is supported by City Policy (Affordable Housing Strategic Plan) and the Strategic Plan (working with partners to address homelessness. ATTACHMENTS (numbered Attachment 1, 2, 3,…) Sherwood House SHERWOOD HOUSE TRANSACTION Council Finance Committee July 11, 2017 Contributing Staff: – Helen Matson, Real Estate Services – Kerri Allison, Real Estate Services – Sue Beck-Ferkiss, Sustainability Service Area ©Copyright 2014 City of Fort Collins. All Rights Reserved. 1 Sherwood House • Proposal to grant a lease with a term of five years at a low cost to Faith Family Hospitality (“FFH”) with an option to purchase the property for $700,000. • Proposed lease rate of $300 per year or $25 per month. ©Copyright 2014 City of Fort Collins. All Rights Reserved. 2 Sherwood House Location ©Copyright 2014 City of Fort Collins. All Rights Reserved. 3 Sherwood House is located northwest of the W. Magnolia Street and S. Sherwood Street intersection, as indicated by the red outlined area in the aerial photo. History of Site • City purchased: – 317 S. Sherwood in 1980 – 321 S. Sherwood in 1986 Purpose of purchase: – Facility for victims of domestic abuse – CDBG funding for these purchases ©Copyright 2014 City of Fort Collins. All Rights Reserved. 4 History of Site • Crossroads Safehouse was the City’s tenant and managed their own program. • The two buildings were combined in 1986. • Addition to South building done in 1994, increasing total number of bedrooms, bathrooms and meeting rooms of entire facility. • Crossroads moved to their new facility late 2011. • RFP was issued for a 3 Year Lease with no response. Too little time for cost to implement. ©Copyright 2014 City of Fort Collins. All Rights Reserved. 5 Public Process • A Neighborhood Listening Session was held on November 1, 2014. • Open House held at the facility on June 25, 2015. • Next step – a survey was sent to 10 non-profit organizations showing interest in site. • Final question on survey: “Would you be interested in a low-cost lease with your organization being responsible for all maintenance?” • FFH only non-profit to accept offer. ©Copyright 2014 City of Fort Collins. All Rights Reserved. 6 Faith Family Hospitality • Faith Family Hospitality's mission is to support families experiencing homelessness to achieve sustainable self-sufficiency in a timely and dignified manner. • This interfaith volunteer effort coordinates the work of 30 diverse Fort Collins faith communities and many partner agencies. • They provide full range of emergency and stabilizing services needed for guest parents and children to become self-sufficient. ©Copyright 2014 City of Fort Collins. All Rights Reserved. 7 FFH’s Planned Use • FFH plans to use the facility as transitional housing for families successfully completing their emergency shelter program. • These families generally have income but insufficient resources to enter the rental market. • The program is designed to strengthen the families resiliency so they can be successful in obtaining and maintaining housing. ©Copyright 2014 City of Fort Collins. All Rights Reserved. 8 Appraisal • City obtained appraisal of site in April of 2016 • Value for property “as is”: $1,160,000 – Appraisal determined highest and best use of property is a group home. – This value includes the value of the improvements – Small market for group homes. ©Copyright 2014 City of Fort Collins. All Rights Reserved. 9 Appraisal • Value of land only = $500,000 • Existing property on two parcels. • Most buyers would like to separate the structures. • Cost to separate homes and reconfigure into two buildings would cost at least $300,000. ©Copyright 2014 City of Fort Collins. All Rights Reserved. 10 Proposed Purchase Option Price • Breakdown of purchase option price: $1,160,000 property value -250,000 FFH upfront investment ** -210,000 Value of City’s contribution to community $ 700,000 Purchase price ©Copyright 2014 City of Fort Collins. All Rights Reserved. 11 FFH Investment ** $250,00 FFH’s upfront investment includes: – Testing building systems and asbestos – Engineering services for required alley paving (FFH paying $45,000 and City will pay the costs of paving entire alley) – Employee parking lot paved – Civil engineer/architect costs ©Copyright 2014 City of Fort Collins. All Rights Reserved. 12 Social Reasons in Support of Project Use of the Sherwood Facility by FFH: • Benefits the community by providing a needed service – transitional housing for families • Supported by City Policy (Affordable Housing Strategic Plan) • Supported by City Strategic Plan (Working with Partners to Address Homelessness) ©Copyright 2014 City of Fort Collins. All Rights Reserved. 13 Additional Support • Location appropriate: – Downtown – Served by transit system • Facility well suited for use • Largely supported by neighbors • Project went through well vetted process • All required modifications approved by Hearing Officer • Puts facility into beneficial use ©Copyright 2014 City of Fort Collins. All Rights Reserved. 14 Direction Sought • Does the Council Finance Committee generally agree with the direction staff has outlined? ©Copyright 2014 City of Fort Collins. All Rights Reserved. 15 Sherwood House Thank you. ©Copyright 2014 City of Fort Collins. All Rights Reserved. 16 1 COUNCIL FINANCE COMMITTEE AGENDA ITEM SUMMARY July 11, 2017 Work Session Staff: Donnie Dustin, P.E., Water Resources Manager Lance Smith, Utilities Strategic Finance Director Carol Webb, Water Resources and Treatment Operations Manager Date: July 11, 2017 SUBJECT FOR DISCUSSION: Changes to the Utilities Raw Water Requirements EXECUTIVE SUMMARY The purpose of this work session is to provide the Council Finance Committee with an overview of the proposed changes to the Utilities Raw Water Requirement system and associated cash-in-lieu rate, and actions taken by Utilities staff following direction given at the February 14, 2017 City Council work session. Staff will be seeking adoption of these changes at the August 15 and September 5 City Council regular meetings. Utilities staff recommends the following changes: • Adjust Raw Water Requirement (RWR) schedules to reflect recent (lower) water use o Use number of bedrooms for indoor component of residential schedule • Adjust the Cash-in-Lieu (CIL) rate per a hybrid cost approach o Increase CIL rate to $16,700 per acre-foot of requirement • Accept cash, existing City-issued water certificates and credits, North Poudre Irrigation Company shares, and CBT units for RWR satisfaction o No longer allow dedication of other water rights • Review and adjust (if necessary) the CIL rate biennially • Review and adjust (if necessary) the RWR schedules every 5 to 7 years • Implement RWR and CIL rate changes on April 1, 2018 GENERAL DIRECTION SOUGHT AND SPECIFIC QUESTIONS TO BE ANSWERED 1. What questions or feedback does the Council Finance Committee have regarding the proposed changes? 2. Does the Council Finance Committee support these changes and recommend bringing them to the full City Council for adoption? BACKGROUND/DISCUSSION The Raw Water Requirements (“RWR”) are a dedication of water rights or cash-in-lieu of water rights (“CIL”) to ensure that adequate water supply and associated infrastructure are available to serve the water needs of development (including re-development needing increased water service). Changes to the RWR and CIL rate have not been made for many years. 2 Staff presented the proposed changes to the RWR and CIL rate at the February 14, 2017 City Council work session. The material provided for that work session, which contains more detailed information on the background and proposed changes, are included as ATTACHMENT 1. Council direction was to consider delayed implementation of the changes, provide information about the impact on rates to delaying or not implementing the changes, conduct additional public outreach (including to the general public), orient new Councilmembers on the related issues, and provide justification for contingencies embedded in the CIL rate. This report will briefly recap the proposed changes and address the direction given by City Council, as well as highlight the public input received on the proposed changes. Water Service Areas in Fort Collins The City of Fort Collins Utilities (“Utilities”) water service area covers the central portion of Fort Collins. As the City continues to grow into the Growth Management Area, much of this growth will be outside the Utilities water service area, and will instead be in the service areas of the surrounding water districts (mostly the East Larimer County Water District and the Fort Collins-Loveland Water District (“Districts””)). Water service for much of this growth will thus be provided by the Districts. The attached map shows these service areas (ATTACHMENT 2). Although regional water collaboration discussions are ongoing with the Districts and direction or potential outcomes of those discussions have yet to be determined, any proposed changes to the RWR and CIL rate will only apply to water service from Utilities and within the Utilities water service area. This does not preclude future changes to the RWR and CIL rate for water service from Utilities based on potential outcomes of the regional discussions or from the Districts modifying their respective water dedication requirements. Current Raw Water Requirements (RWR) The RWR starts with determining the amount of RWR that must be provided to Utilities, which are generally based on water use and development type. Once the amount of RWR is determined, it can currently be met by: • Dedication of acceptable water rights (mostly local ditch company shares) • A payment of cash-in-lieu of water rights (currently $6,500 per acre-foot of RWR) • Turning over City-issued water certificates or credits. Future Development and Water Use Changes The amount of RWR needed to meet Utilities’ future water supply needs includes calculating the projected amount of future water use from new and redevelopment and then, determining the water rights and/or facilities needed to meet that projected use, and adjusting the RWR to acquire the necessary supplies and/or facilities. The Utilities’ water service area population is projected to grow about 45,000 by the year 2065 (from the current service area population of about 133,000 to about 178,000). Based on the current RWR schedules, this projected growth is estimated to provide about 11,900 acre-feet of additional RWR that will be turned in to Utilities. However, water use has significantly changed since the current RWR schedules were developed. 3 The current RWR schedules are based on a 1983 study. Utilities staff analyzed 10 years (2006- 2015) of monthly water billing data. Due in great part to successful conservation efforts, water consumption for almost every customer category has decreased from the amount required under the current RWR calculations. In addition, the analyses suggest that the best models for predicting water consumption for both single-family and multi-family residential developments are those based on lot size and number of bedrooms. Suggested RWR Adjustments Given the changes in water use from the expected amount per the current RWR calculations, staff recommends that the RWR calculations be adjusted to reflect the information provided above. Making these changes will reduce the overall projected amount of expected RWR the Utilities will receive in the next 50 years from about 11,900 acre-feet to about 7,700 acre-feet. More specifically, it is recommended the RWR calculations be changed to the following: Water Supply Needs and Other Costs for Increasing Firm Yield Utilities projects the need for new infrastructure and some additional water rights to increase the Utilities firm yield by about 7,800 acre-feet in order to meet projected future growth in the water service area by 2065. Alone, acquiring the new infrastructure and water rights would not provide adequate water supplies needed for those future customers without use of the existing water supply system. As explained in the previous material (ATTACHMENT 1), a “buy-in” component was added to consider the total value of the water supply system that new development will need. The following briefly lists these components and their projected costs/value in 2017 dollars: • $63.9M: Infrastructure (mostly additional storage, e.g., Halligan Water Supply Project) • $25.5M: Future water rights (requires storage to be effective) 4 • $40.5M: Value of existing portfolio to be utilized by new development Combining these costs provides the total current cost to increase the firm yield for new development (or redevelopment) of approximately $129.9 million. Cash-in-Lieu (CIL) Rate Changes As explained in the previous material (ATTACHMENT 1), staff developed a hybrid CIL rate approach that uses the total costs to increase the firm yield and divides this amount by the additional provided. CIL Rate (Hybrid Approach): $129.9M (cost to increase firm yield) / 7,800 acre-feet (increased firm yield) = $16,700 per acre-foot of RWR This higher CIL rate will increase costs for all types of development in the Utilities water service area, but is necessary to ensure an adequate water supply to serve new development. Even with these increases, however, Utilities’ RWR costs will remain one of the lowest when compared with water providers. Cash Focus Considerations It is imperative that the RWR become a “cash focused” system. This would mean no longer accepting water rights to meet the RWR, except for CBT units and NPIC shares that come with storage that provide year-round use and firm yield. Existing City-issued water certificates, as well as credits from previously satisfied RWR, will still be accepted. Cash will allow focus on acquiring additional storage capacity, agility to acquire specific water rights, and flexibility to pursue other (potentially regionally collaborative) water supply options. Commercial Surcharges Commercial taps that have met the RWR since the mid-1980s have also received an equivalent water allotment. After a customer’s total annual water use goes over that allotment in a given calendar year, their water bill includes a surcharge rate applied to all water use over the allotment (along with the standard water rate). The current surcharge rate is $3.06 per 1,000 gallons (for use over the annual allotment). Funds collected via this surcharge are intended for acquiring additional water supplies to compensate for the use over what was initially provided. The proposed increases to the CIL rate will increase the surcharge rate to $7.86 per 1,000 gallons. Allotments can be increased closer to actual use by meeting additional RWR. Since the change to the surcharge rate is significant, Utilities staff is conducting focused outreach to existing customers who consistently exceed their annual allotment. In particular, Utilities water conservation staff is contacting these customers about ways to reduce their use. Also, upon final adoption of the RWR/CIL rate changes by City Council and assuming a delayed implementation of those changes, these customers will be alerted to the opportunity to increase their allotments before the CIL increases take effect. 5 Future RWR/CIL Adjustments It is recommended that the CIL rate be reviewed every two years, as a part of the other City biennial fee review process, and adjusted as needed to reflect changes to construction costs 1 , water rights, and projected RWR (related to growth projections). It is also recommended that the RWR schedules should be reviewed every 5 to 7 years and changed if necessary, since changes to average water use are usually the result of long-term water conservation. Outreach Utilities staff has presented the proposed RWR and CIL rate changes to key stakeholders including local ditch companies (from which Utilities has accepted shares), the Fort Collins Chamber of Commerce, the Northern Colorado Home Builders Association, Utilities key accounts, several individual affected developers and water right holders, and various discussions with the Districts. In addition, the changes were presented to the City’s Water Board, Economic Advisory Commission, Affordable Housing Board, and Natural Resources Advisory Board. In addition, general public outreach will be conducted (per Council request) via focus groups in early July to solicit input on paying for water supply development via the proposed development fees versus potential water rate increases. Input from these meetings will be provided to City Council once completed. Input Received The following summarizes various input received during the outreach process to date, followed by staff reactions or adjustments made to the proposed changes to address the input: • Concern about the increased costs to housing in Fort Collins o Although these changes will increase the cost of new housing in Fort Collins, the proposed changes are needed to provide an adequate water supply to this new development. Even with the overall increase in water costs for new development in the Utilities service area, these costs will still be lower than most in the region. • The “buy-in” component of the CIL rate is like paying for something twice; where does that revenue get used? o The $40.5 million “buy-in” component of the CIL rate considers the future customer’s use of a portion of the existing water supply system. Only acquiring the projected infrastructure and water rights needs explained above would not provide enough water supplies to support the projected growth. They need to use portions of the existing water supply system. The revenue generated from this portion will reduce future costs associated with upkeep of the water supply system and ensures that a portion of the Utilities Water Fund reserves are replenished for water system improvements that help to reduce future rate increases for all customers by offsetting the impacts from development. 1 It should be noted that the current estimate of future infrastructure needs includes the projected costs for the enlargement of Halligan Reservoir, but that alternatives to the Halligan Reservoir enlargement that might be selected through the Halligan Water Supply Project permitting process could cost substantially more – and thus, there could be a need to increase the CIL rate accordingly. 6 • No longer accepting local ditch company shares will devalue those rights o The ditch shares historically accepted by Utilities have always been and will continue to be available for purchase by others (including the City), which should help to maintain their value. Recently, the East Larimer County Water District (or ELCO, which serves the northeast potion of the City’s GMA) began accepting several of the ditch company shares that were historically accepted by Utilities. This concern of devaluation was focused on shares of the Pleasant Valley and Lake Canal Company (PVLC), which is not accepted by ELCO or other known water providers. Utilities staff projects the need for some additional PVLC shares and shareholders can contact staff if they wish to sell their shares. Utilities would intend to purchase them at a fair market value. o While staff recognizes that this change may impact the market value of these water rights (local ditch shares) in the near term, as the chart below shows the use of such rights to meet the RWR for development has not been very common in recent years. Moreover, as the utility approaches build out of its service territory it is imperative that the final additions to the water rights portfolio are strategically made through targeted purchases of certain water rights. • The proposed changes will increase costs for projects that are already in the development process o Developers typically consider the total cost of a development with the water (and other) fees that are in place before they get approvals and start construction, particularly for commercial and multi-family developments which are typically built in a short time period and sold as one project (versus single family homes, which an entire development can take years to build and the home prices can adjust with the fees). Some developers requested a delayed implementation to avoid these types of cost impacts. According to the Planning Department, it takes approximately 9 to 12 months from a first submittal to a final development plan – at which point the RWR can be assessed and met (paid). Given that these changes were initially presented to City Council on February 14 (and thus made public) and staff’s recommendation is to delay implementation until January 1, 2018, this 7 should provide adequate time for developments that had started earlier this year to meet the RWR under the current system and CIL rate. • No longer accepting water rights will injure developers that have collected them for planned developments that are early in the City’s process o Some developers have submitted a large overall development plan (“ODP”) to the City that has multiple phases of development that might takes several years to build out. Also, some developers have started development that take longer than the typical 9-12 months to get through the City approval process. These developers may have collected water rights (local ditch shares) for these projects, but are not yet at the stage of development to turn them in to meet the RWR. Discontinuing acceptance of water rights would burden the developers that have planned accordingly. In order to prevent this type of burden, staff has included provisions to allow dedication of these water rights under the following set of conditions:  Developer shows proof of starting the development and ownership of shares for the development to be dedicated prior to February 14, 2017  Transfer of water rights to the City occurs prior to January 1, 2019  The dedicated water rights shall not be transferred to another property (in case of changes to the development) • Affordable Housing Board (“AHB”) would like to make exceptions for qualified projects o After presenting the proposed RWR and CIL rate changes, the AHB provided a letter to Utilities asking for exceptions to these changes (see ATTACHMENT 3). In short, the AHB requests: 1) that the proposed changes NOT be applied to qualified affordable housing developments (“QAHD”), essentially freezing the current CIL rate for QAHD; 2) if changes apply to QAHD that they be phased to them last (at least 24 months); and 3) if changes apply to QAHD, that the CIL rates be locked for QAHD at the beginning of the development process  1) Freezing the CIL rate for QAHD would result in lost Utilities impact fees that would need to be made up through increases to Utilities water rates, which is counter to the Utilities enterprise fund operations by transferring enterprise funds to subsidize affordable housing. For this reason, Utilities does not have the authority to implement this request. City Council could consider use of general funds to make up this shortfall.  2) Utilities staff does not suggest a phased CIL rate change, since implementing the RWR decreases without the CIL rate increases would result in less revenue than is currently received under the current RWR/CIL rate system.  3) City Code allows QAHD to delay the payment of various fees, including RWR, with the risk that fees may increase. Utilities would be open to a discussion about when the RWR and other fees could be locked in for QAHD. The Social Sustainability Department is organizing an internal City task force to consider affordable housing issues. Utilities will be part of that task force and this issue will be included. • General support from the Economic Advisory Commission and Natural Resources Advisory Board (with some members advocating for higher CIL rate) 8 Previous Council Requests Councilmembers had the following requests for additional information at the February 14 work session, which are followed by staff responses: • Staff should consider delayed implementation of the changes on the order of 6 to 12 months, and should define the impacts of this schedule. o Delaying the implementation of the RWR and CIL rate changes can be done, but doing so would result in less revenue over the delay period. In the last 3 years, the amount of RWR met has averaged about 800 AF. Assuming this average will continue for the next year or two, then the amount of revenue lost could be significant. If all RWR (under both the current and proposed systems) was met with cash only (no credits or water rights), the reduction in revenue would be approximately $1.7 million every 6 months or about $3.5 million per year. Any shortfalls would fall upon the ratepayers through future rate increases. Based on 2016 water fund operating revenues of $29.7M, a $3.5M annual shortfall would represent 12% of annual operating revenues. • Staff should provide information about the impact on ratepayers from not making these changes and how rates have changed over time. o There are two main changes to the RWR/CIL rate system that effect the revenues generated. First, the proposed decreases in overall RWR to be satisfied are to recognize lower water use as a result of long-term water conservation. Not making the RWR changes could put the Utilities at risk of legal challenge, since the current RWR schedules arguably require more water than is needed. Therefore, if the RWR is decreased, but the CIL rate remains at $6,500 per acre- foot of RWR, the amount of projected lost revenue would be about $49 million. This shortfall would fall upon the ratepayers through future rate increases, which could be significant. o Utilities water rate increases have varied over the past years. More recently, Utilities has advocated for gradual, but consistent rate increases to avoid large, unexpected ones – like one that might be needed if the proposed changes to the RWR/CIL rate are not made. • Please provide justification for the contingencies used in the proposed changes. o A 25 percent contingency was added to the infrastructure and water right components of the projected costs that were part of the proposed CIL rate. The main cost in the infrastructure component is based on the estimated cost of the Halligan Water Supply Project. However, the City may get a permit for an alternative project that could be up to 2.5 times the cost of enlarging Halligan Reservoir. The cost of the future water rights component are based on current market values and the contingency considers potential inflation of these rights. CBT units cost about four times their cost 6 years ago. Given these examples, Utilities staff believes the 25 percent contingency is justified (if not conservatively low). • Please orient new Councilmembers on these issues if Council action is delayed until after the April municipal elections. o Councilmember Summers was briefed on these changes (along with many other Utilities items) by the Utilities Executive Director prior to this meeting. In 9 addition, Mr. Summers will be oriented prior to Council action via this meeting as a member of the Council Finance Committee. • Additional public outreach should be conducted, including to the general public, as well as affected stakeholders. o Additional public outreach (including to the general public) has been or will be conducted, as discussed above. Staff Recommendations Utilities staff recommends the following changes: • Adjust Raw Water Requirement (RWR) schedules to reflect recent (lower) water use o Use number of bedrooms for indoor component of residential schedule • Adjust the Cash-in-Lieu (CIL) rate per a hybrid cost approach o Increase CIL rate to $16,700 per acre-foot of requirement • Accept cash, existing City-issued water certificates and credits, North Poudre Irrigation Company shares, and CBT units for RWR satisfaction o No longer allow dedication of other water rights • Review and adjust (if necessary) the CIL rate biennially • Review and adjust (if necessary) the RWR schedules every 5 to 7 years • Change Code from “Raw Water Requirements” to “Water Supply Requirements” Implementation Options Implement all RWR and CIL rate changes on: • October 1, 2017 (8 months after the Feb. 14 City Council Work Session) • April 1, 2018 (a further 6-month delay) o Staff Recommendation: allows time to address developer concerns with minor impact to rate payers • October 1, 2018 (a further 1-year delay) These proposed changes have been incorporated into the pertinent sections of the City’s Municipal Code, which is provided in the attached draft Ordinance (ATTACHMENT 4). Next Steps • Complete general public outreach process (early July) • Present changes at the July 20 Water Board meeting for their recommendation • Bring changes for adoption at August 15 and September 5 City Council meetings ATTACHMENTS 1) February 14, 2017 City Council Work Session Agenda Item Summary 2) Fort Collins Area Water Districts Map 3) Affordable Housing Board Letter (dated April 19, 2017) 4) Draft Ordinance for Proposed Changes to the City’s Municipal Code 5) Presentation DATE: STAFF: February 14, 2017 Donnie Dustin, Water Resources Manager Carol Webb, Water Resources/Treatmnt Opns Mgr Lance Smith, Utilities Strategic Finance Director WORK SESSION ITEM City Council SUBJECT FOR DISCUSSION Changes to the Utilities Raw Water Requirements. EXECUTIVE SUMMARY The purpose of this work session is to seek City Council input on staff’s proposed changes to the current Raw Water Requirement (RWR) system and associated Cash-in-Lieu (CIL) rate. The review of the RWR and CIL has been prompted by various recent events (e.g., change in water use and water right prices) and has resulted in staff proposing several changes to the RWR and CIL that are needed to ensure that the impacts of new development will be offset and that the City will have adequate water supplies and infrastructure. Staff will provide City Council with an overview of the current RWR system and associated CIL rate, which allows for generating adequate funds and water rights to provide a reliable water supply for new development (and redevelopment needing increased water service) within the Utilities water service area. Utilities staff recommends the following changes:  Adjust RWR schedules to reflect recent (lower) water use o Use number of bedrooms for indoor component of residential schedule  Adjust CIL rate per a hybrid cost approach o Increase CIL rate to $16,700 per acre-foot of RWR  Accept cash only (and existing City-issued water certificates and credits) o Discontinue the dedication of water rights  Require periodic adjustment of the RWR and CIL. o Review and adjust (if necessary) the CIL rate biennially o Review and adjust (if necessary) the RWR schedules every 5 to 7 years GENERAL DIRECTION SOUGHT AND SPECIFIC QUESTIONS TO BE ANSWERED What feedback does Council have on the proposal to: 1. Change the amount of raw water required? 2. Change the CIL rate and methodology? 3. Accept cash only? 4. Require periodic updates to the RWR and CIL rate? BACKGROUND / DISCUSSION The Raw Water Requirements (RWR) are a dedication of water rights or cash-in-lieu of water rights (CIL) to ensure that adequate water supply and associated infrastructure are available to serve the water needs of development (including redevelopment needing increased water service). Staff will present background information including the existing RWR system and CIL rate, future development and water supply needs, water use changes, and potential changes to the RWR system and CIL rates. February 14, 2017 Page 2 Water Service Areas in Fort Collins The City of Fort Collins Utilities (Utilities) water service area covers the central portion of Fort Collins. As the City continues to grow into the Growth Management Area, much of this growth will be outside the Utilities water service area, and will instead be in the service areas of the surrounding water districts (mostly the East Larimer County Water District and the Fort Collins-Loveland Water District (Districts). Water service for much of this growth will thus be provided by the Districts. The attached map shows these service areas (Attachment 1). Although regional water collaboration discussions are ongoing with the Districts and direction or potential outcomes of those discussions have yet to be determined, any proposed changes to the RWR will only apply to water service from Utilities and within the Utilities water service area. This does not preclude future changes to the RWR for water service from Utilities based on potential outcomes of the regional discussions or from the Districts modifying their respective water dedication requirements. Raw Water Requirements The RWR is a requirement for providing adequate water supply service by Utilities. It currently requires a dedication of water rights, a payment of cash-in-lieu of water rights, or turning over City-issued water certificates to ensure that an adequate supply of raw (untreated) water and associated infrastructure (e.g., storage reservoirs) are available to serve the needs of development (including re-development needing increased water service). Generally, the RWR are based on water use and development type. The current RWR schedules are attached (Attachments 2 and 3). The goal of the RWR is to acquire adequate water rights and funds to provide a reliable raw water supply for a development. Although not the focus of this discussion, other water-related development fees include water and wastewater plant investment fees (PIFs) that are assessed to cover the treatment and distribution infrastructure required to process and transport treated water and resulting wastewater into and out of a development. These water-related development fees are one-time impact fees (or requirements) and are separate from water rates, which recover the operational costs of running and maintaining this infrastructure. For the purposes of this discussion, RWR refers to the volume of raw water needed to meet the projected water use of a development (in acre-feet of water) and the CIL fee refers to the cash equivalent of that water supply needed. The current amount of RWR assessed for residential development is based on a calculation that incorporates indoor and outdoor use components and a water supply factor multiplier. The current amount of RWR assessed for non-residential (or commercial) development is based on the average use for particular meter (or tap) sizes and also includes a water supply factor multiplier. The water supply factor used in both the residential and commercial RWR schedules is currently 1.92, which means that Utilities requires 1.92 times the amount of the projected (or average) water use of a development. Reasons for this factor include the need to account for treatment and distribution losses in the supply system, variable demands of customers (e.g., higher use during hot, dry years), variable yields of supplies (e.g., less yield in droughts) and variable yield from the Utilities different water supply sources (since some yield better than others). Given these and other uncertainties in providing reliable water supplies (e.g., climate change), the 1.92 water supply factor continues to be necessary. Once the amount of RWR for a development is determined (in acre-feet), the RWR currently can be satisfied with acceptable water rights, a payment of cash in-lieu-of water rights, City-issued water certificates or credits, or a combination. The water rights currently accepted by Utilities for satisfaction of the RWR are attached (Attachment 4). The CIL rate is currently $6,500 per acre-foot of RWR. Previous adjustments to the CIL rate have considered the raw water supply situation of Utilities at the time, including factors such as the market price of Colorado-Big Thompson Project (CBT) units, the potential value of local water rights (e.g., Southside Ditches), and the goal to receive an appropriate mix of water rights and cash needed to develop additional firm yield for development. Among other things, changes to the CIL rate should consider the cost to acquire additional storage capacity (e.g., Halligan Water Supply Project) and other facilities required to fully utilize the Utilities water rights portfolio, the value of the existing water supply system, and developing a methodology for easily updating the CIL rate. February 14, 2017 Page 3 Future Development The amount of RWR needed to meet Utilities’ future water supply needs includes calculating the projected amount of future water use, determining the water rights and/or facilities needed to meet that projected use, and adjusting the RWR to acquire the necessary supplies and/or facilities. Calculating the projected amount of future water use and expected RWR that will be turned in depends on projected growth (both population and commercial/industrial). The Utilities’ water service area population is projected to grow about 45,000 by the year 2065 (from the current population of about 133,000 to about 178,000). Based on the current RWR schedules, this projected growth is estimated to provide about 11,900 acre-feet of additional RWR that will be turned in to Utilities. However, water use has significantly changed since the current RWR schedules were developed. Water Use Changes The current RWR schedules are based on a 1983 study focused on relating actual water use with the raw water requirements. The study analyzed annual water consumption data broken into categories based on number of dwelling units, type of living structure, and equivalent lot size (net total area of development divided by number of dwelling units). A linear formula was then derived which could be used to project consumption on the basis of residential density (number of units and size of lot), utilizing the same formula for both single-family and multi- family developments. This projected consumption is the “expected use” for a particular type of development. Acknowledging the impacts of conservation on the City’s water consumption, Utilities staff studied recent water use patterns for single-family, multi-family, and commercial developments. The results of the study showed significantly lower water consumption for single-family and multi-family developments over recent years, as compared to the expected use from the current RWR calculations. Differences in water consumption for commercial developments were not as significant, though changes were also present. The differences in expected use versus recent actual use prompted staff to investigate possible methods for updating the water use formulas in the RWR in order to better project expected use for future developments. Methods To investigate recent trends in water consumption, the past 10 years (2006-2015) of monthly water billing data was analyzed, broken out by single-family residential, multi-family residential, and commercial developments. Utilizing 10 years of consumption data helps to capture climatic variations, which can greatly affect water consumption across all development types. From the outset, the data for different types of residential developments were analyzed separately, with the anticipation that average consumption trends would differ between development types. Further investigation into the use data and types of developments led to combining data for duplexes with single-family developments. Single-family/Duplex Due in great part to successful conservation efforts, water consumption for single-family residential customers has decreased. The current analysis shows a significant difference between the average annual use per single-family home and the calculated expected use from the current RWR equations. These differences are outlined in Table 1. Multi-family Due to the complexity of compiling and verifying water consumption data for multi-family developments, which often include multiple buildings and irrigation taps, a representative sample of developments were analyzed for this study. Multi-family residential water use, which includes both indoor and outdoor use, has seen an overall downward trend and the average annual use per unit is significantly lower than the calculated expected use from the current February 14, 2017 Page 4 RWR equations. Table 1 shows the average use per unit, as well as the change from the expected use predicted from the current RWR equations. Table 1. Summary of annual residential water use from 2006-2015 Residential Development Type Expected Use per Unit (gal/year) Average Use per Unit (gal/year) Fraction of Expected Use Single-family/Duplex 130,840 96,640 74% Multi-family 79,720 48,380 61% In an effort to realign the RWR equations to more closely reflect current use patterns, multi-variate regression models were utilized to investigate multiple variables (e.g., lot size, number of units, building square footage, number of bathrooms, and number of bedrooms) and their ability to predict water use. The results of the analyses suggest that the best models for predicting water consumption for both single-family and multi-family residential developments are those which include lot size and number of bedrooms. The correlation between number of bedrooms and indoor water use was much greater than the current method based on number of units. This analysis indicates that altering the current RWR schedules would more accurately reflect current residential water use patterns, as well as more equitably distribute those requirements across the range of development types and sizes by better reflecting actual water use. Proposed alterations to the residential RWR schedule include separate equations for single-family (and duplex) and multi-family residential developments, as well as modifying the equation to reflect expected use as a function of number of bedrooms and lot size. These changes would reduce the volume of water required under the RWR for the average residential development. Commercial Finally, the analysis considered non-residential (or commercial) water use. An analysis of non-residential water use from 1981-2015 showed that non-residential water use increased by roughly 35% shortly after the 1980s water use study, but has trended back downward since then. Non-residential water use can vary widely by the type of business (even for the same tap size). For instance, a restaurant would be expected to use more water than a hardware store, even though they may occupy otherwise similar commercial spaces of equal size and are connected to Utilities with the same tap size. It would be administratively difficult and costly for Utilities or developers to accurately estimate each non-residential development type’s water use, especially as that use can change over time as businesses evolve and come and go on a particular property. Each of the most common tap sizes from 0.75-inch to 2-inch thus have a set RWR volume. The current method of a set RWR volume for the smaller tap sizes maintains equity across different types of water users for a single tap size by setting an allotment for a maximum allowed amount of water use, and then applying a surcharge rate for use beyond the allotment. The allotment is based on 80% of the average use for a tap size. This method provides a baseline that encourages water conservation, while still allowing customers to pay for additional RWR for greater amounts of water use. This method also recognizes that a small number of high water-use businesses pull up the overall average use of all customers in that tap size. Consequently, by using 80% of the average, the numerous businesses that use much less than the average are not penalized. Funds acquired from the surcharge rate applied to use over the allotment are used to acquire more water supplies. This methodology is still applicable to current commercial development and is recommended to be continued. Table 2 shows the average annual water use by tap size, the expected use predicted by the 1980s study and used in the current calculation of RWR, as well as the fraction of expected use. The table shows that non- residential water use was less than expected for the 1-inch, 1.5-inch, and 2-inch taps, but the 0.75-inch, was near expected. Since RWR for non-residential development is determined by tap size, the RWR could be adjusted by the fraction of expected use to reflect the change in water use over time. February 14, 2017 Page 5 Table 2. Summary of annual, non-residential water use from 2006-2015 Tap Size (inches) Expected Use (gallons/year) Average Use (gallons/year) Fraction of Expected Use (%) 0.75 191,000 190,000 100% 1.0 636,000 479,000 75% 1.5 1,273,000 1,002,000 79% 2.0 2,037,000 1,678,000 82% Suggested RWR Adjustments Given the changes in water use from the expected amount per the current RWR calculations, staff recommends that the RWR calculations be adjusted to reflect the information provided above. Making these changes will reduce the overall projected amount of expected RWR the Utilities will receive in the next 50 years from about 11,900 acre-feet to about 7,700 acre-feet. More specifically, it is recommended the RWR calculations be changed to the following: Water Supply Needs In order to meet future growth, Utilities projects the need for new infrastructure and some additional water rights. The largest part of the new infrastructure would be acquisition of additional storage capacity through the Halligan Water Supply Project. The additional storage at an enlarged Halligan Reservoir would meet a large portion of the projected future demands by storing existing water rights (and water rights to be acquired in the future) during wet times for use during dry times. Other infrastructure that is projected to be needed by 2065 includes being part of facilities required to fully utilize the Utilities’ recently changed Water Supply and Storage Company shares and potential future measuring devices and by-pass facilities on the Poudre River as part of requirements for utilizing some of the Utilities water rights. Utilities also projects a longer term need (by 2065) for some additional water rights to complement the additional storage capacity. Adding the new infrastructure and water rights to the water supply portfolio will increase the Utilities’ firm yield about 7,800 acre-feet, from the existing firm yield of 30,800 acre-feet to about 38,600 acre-feet. This boost in firm yield will meet the expected future growth for the Utilities water service area mentioned above. The new February 14, 2017 Page 6 infrastructure is estimated to cost approximately $63.9 million and the additional water rights about $25.5 million, both of which include a 25 percent contingency and total about $89.4 million. Other Costs for Increasing Firm Yield In addition to the new infrastructure and water rights mentioned above, future Utilities customers will benefit from the existing water supply portfolio. Alone, acquiring the new infrastructure and water rights mentioned above would not provide adequate water supplies needed for those future customers without use of the existing water supply system. Also, the future water supply needs for new development are being reduced by leveraging the capacity in the existing water rights system that is largely the result of effective water conservation from existing customers. In addition, new customers will have an impact on the existing water supply system through its increased use. These factors justify a partial “buy-in” to the existing system. Adding a “buy-in” charge for the future customer’s use of a portion of the water supply system will reduce future costs associated with upkeep of the water supply system, part of which results from development. Funds raised by this “buy-in” portion of the impact fee also ensures that a portion of the Utilities Water Fund reserves are replenished for water system improvements that help to reduce future rate increases for all customers by offsetting the impacts from development (e.g., helping to recover costs for the recent $8 million Michigan Ditch tunnel project). Adding the new infrastructure and water rights will increase the Utilities’ water supply firm yield from 30,800 to 38,600 acre-feet. This 7,800 acre-foot increase is about 20 percent of the future firm yield. A reasonable method of determining the portion of the existing portfolio used by future development would be to assume they use the same proportion (about 20 percent) of the existing firm yield of 30,800 acre-feet (or about 6,200 acre-feet). Applying the long-standing CIL rate of $6,500 per acre-foot to the approximate 6,200 acre-feet, results in a value of the portion of the existing portfolio that can be utilized by new development of about $40.5 million. This method minimizes the buy-in cost by only considering a certain portion of the water supply system (the most recently acquired ditch company shares) and does not factor in the higher value of other portions of the system (such as CBT units or senior water rights - all of which will be used by new development). Combining the costs of the new infrastructure and water rights needed with the value of the existing water supply portfolio gives the total cost to increase the firm yield for new development (or redevelopment) of approximately $129.9 million. Cash Only Considerations It is imperative that the RWR become a “cash only” system. This would mean no longer accepting water rights to meet the RWR. However, the existing City-issued water certificates, as well as credits from previously satisfied RWR, will still be accepted. This cash only system would recognize the importance of acquiring additional storage capacity (which cannot be turned in to meet the RWR), since such storage capacity increases our supplies by making existing (and future) water rights available during dry times. Utilities will need to focus on specific water rights in the future to avoid inefficient rights that are ineffective in our water supply system. In a cash only system, water rights could still be purchased by Utilities and focus would be given to the best water rights for our water supply system. It should be noted that Utilities plans to focus use of the cash received on infrastructure first (particularly additional storage), since it efficiently and economically provides for reliable water supplies. In addition, accepting cash only would provide flexibility to pursue other water supply options in the future, which could include regionally collaborative projects. Cash-in-Lieu (CIL) Rate Changes BBC Research and Consulting (“BBC”), which has expertise in fee and rate analyses, was hired to review the RWR system and the CIL rate. Utilities took the information provided by BBC to consider options for changes to the RWR system and CIL rate. Their attached report (Attachment 5) shows the results of their findings. As part of their study, BBC was asked to evaluate the value of the Utilities’ water supply portfolio. BBC did this by considered an equity buy-in approach for a CIL rate adjustment, where they valued the Utilities existing and future water supply system to be worth between $1.3 and $1.5 billion. Dividing that total system value by the future firm February 14, 2017 Page 7 yield of the water supply system of approximately 38,600 acre-feet determines the equity buy-in value of the water supply system. Using the low end of the total system value ($1.3 billion) results in an equity buy-in amount of about $33,800 per acre-feet of RWR. This would be an amount to “plug into” the Utilities water supply system and approximates what it would cost to acquire those supplies today. BBC also helped Utilities consider other approaches for a CIL rate adjustment. The other main option was an incremental cost approach, which considers only the costs of future water supply needs. Because the existing water rights portfolio includes water rights which will be more effectively utilized through the development of water storage and thereby will provide some water to future growth, this approach does not accurately reflect the total costs for development and would under collect the anticipated cost of developing the required water supply system. Ultimately, BBC helped Utilities identify a modified buy-in or hybrid approach that combined elements of the equity buy-in approach and an incremental cost approach. This hybrid approach involves looking at the value of existing water supply portfolio (as discussed above), the costs of future water supply needs and dividing this cost by the firm yield those future water supplies provide. Using the total costs of approximately $129.9 million, divided by the additional 7,800 acre-feet of firm yield provided, results in a hybrid approach value of about $16,700 per acre-foot of RWR. Principles of Impact Fees As staff investigated potential options for changes to the RWR system and the CIL rate, the following principles of impact fees for new development or redevelopment were followed  Growth should pay its own way. This means the impacts of the development should be paid for by the development and not by existing ratepayers via increased rates.  The impact fee should charge only the cost of mitigating the impact of the development on current customers. For example, setting the CIL to the market value of local water rights could result in charging more than is needed.  Adding the development should be done while maintaining the current level of service, with little to no impact to existing rate-paying customers. For example, reducing the drought tolerance level for existing customers by utilizing water made available through water conservation to new development could impact the level of service for existing customers. RWR and CIL Rate Changes: Options Explored Several options for changing the RWR system and the CIL rate were explored. The criteria used in considering these options included whether the option met the principles of impact fees (as explained above), was financially sustainable, and was defensible. Financial sustainability means that it will generate adequate funds to acquire the future water supply needs of the development, as well as having a reasonable and easily reproducible methodology for acquiring the funds. Lastly, defensibility is important to avoid potential risks associated with the methodologies used in any option. The following is a brief description of the different options or approaches that were investigated for changing the RWR system and CIL rate, including whether the option met the criteria mentioned above. With the exception of the first option (Status Quo), all options include going to a cash only RWR/CIL system. Status Quo: This option would involve not changing anything, including the RWR calculations, the current $6,500 CIL rate or going to a cash only system. This option does not meet any of the criteria since it does not generate adequate funds, it burdens existing customers to pay for future needs, and it asks for more water (RWR) than development needs. Existing RWR, Adjust CIL: This option would involve leaving the RWR calculations the same and adjusting the CIL rate by dividing the costs of our total future needs by the projected RWR we expect. Although this option meets the financially sustainable criteria by generating the necessary funds for acquiring the future water supply February 14, 2017 Page 8 needs mentioned above, it does not meet the other criteria since it asks for more water (RWR) than development needs. Equity buy-in approach: This option would involve adjusting the RWR calculations as recommended above and adjusting the CIL rate to the equity buy-in amount of $33,800 as explained above. Although this option partially meets the financially sustainable criteria by generating the necessary funds for acquiring the future water supply needs mentioned above, it is based on a replacement cost of the entire water supply system. Split fee approach: This option would also involve adjusting the RWR calculations as recommended above. This option would involve creating a new, additional impact fee for the necessary infrastructure needed for future water supplies, along with the current RWR fee for the water rights needed (or available to developers through existing City water certificates or credits). A variation of this option (termed a Water Right Utilization Fee) was presented to City Council during a September 24, 2013 work session. Although this option would meet most of the criteria, it potentially would create disputed issues with the use of some of the City’s water certificates and was thus not considered further. Incremental cost approach: This option involves adjusting the RWR calculations as recommended above and adjusting the CIL rate based on only the incremental costs to acquire the future water supply needs. However, because of the City’s outstanding water certificates and credits, this approach does not recognize the value of these credits to the new development and also would not generate adequate funds. Hybrid approach: This option involves adjusting the RWR calculations as recommended above and adjusting the CIL rate based as a hybrid of the incremental costs to meet the future water supply needs, along with a “buy-in” charge to future customers for the value of a portion of the Utilities’ existing water supply portfolio. By collecting sufficient revenue to meet future water supply needs associated with this growth and buying into the existing water supply system for the use of water being made available through water conservation that helps pay for the additional impacts to the existing system from new customers, this option meets all the criteria used. Thus it is the recommended option. Proposed Changes to the RWR and CIL Rate Given the information provided above, and consulting with BBC on various aspects of the RWR system and CIL rate, the best option is to use a hybrid approach. This approach would include changing the RWR calculations as suggested above. The CIL rate for this hybrid approach would be $16,700 per acre-foot of RWR. This CIL rate can be compared with about $50,000 per acre-foot of firm yield from the CBT project or with the full equity buy-in amount of $33,800 discussed above. It should be noted that the changes in the CIL rate are a significant shift from the past CIL methodology, which just looked at the incremental cost of acquiring water rights. In the future, when there may be no need for acquiring additional water supplies or infrastructure, we would likely switch to an equity buy-in approach for the CIL rate similar to the current Utilities Plant Investment Fee (PIF) structure. The recommended hybrid approach is an interim transition from an incremental to an equity buy-in approach. RWR/CIL Comparisons Table 3 shows information for the status quo (no changes) and the proposed hybrid approach, including the assumed RWR amounts, CIL rates and cost for typical developments. Although the proposed changes to the RWR schedules and CIL rates are related to impact fees specific to the Utilities water service area, a comparison with other northern Colorado water providers for single family homes and 1-inch taps are provided in Figures 1 and 2 (for illustrative purposes only). February 14, 2017 Page 9 Table 3 - Fort Collins Utilities Raw Water Requirements (RWR) for Typical Developments Development Type Status Quo (CIL=$6,500/AF) Hybrid Approach (CIL=$16,700/AF) Change from Status Quo (%) Single family, 4br, 6,000 sq ft lot Raw Water Requirement, AF: 0.66 0.54 -19.0% Total Cost, $: $4,309 $8,970 108.2% Multi-family, 100 units, 3.4 acres Raw Water Requirement, AF: 42.49 23.33 -45.1% Total Cost, $: $276,210 $389,674 41.1% Unit Cost, $/unit: $2,762 $3,897 41.1% Commercial Tap: 0.75" Raw Water Requirement, AF: 0.90 0.90 0.3% Total Cost, $: $5,850 $15,070 157.6% Commercial Tap: 1.0" Raw Water Requirement, AF: 3.00 2.27 -24.5% Total Cost, $: $19,500 $37,836 94.0% Commercial Tap: 1.5" Raw Water Requirement, AF: 6.00 4.72 -21.3% Total Cost, $: $39,000 $78,877 102.2% Commercial Tap: 2.0" Raw Water Requirement, AF: 9.60 7.91 -17.6% Total Cost, $: $62,400 $132,104 111.7% February 14, 2017 Page 10 Figure 1 $4,300 $9,000 $11,800 $13,000 $13,200 $14,200 $25,000 $0 $5,000 $10,000 $15,000 $20,000 $25,000 $30,000 Status Quo Hybrid Approach Loveland NWCWD Greeley ELCO FCLWD Cost, rounded to nearest $100 ($) Water Supply Costs for Typical Single Family Home in Northern Colorado Figure 2 $19,500 $30,600 $37,800 $62,500 $64,000 $101,100 $105,000 $0 $20,000 $40,000 $60,000 $80,000 $100,000 $120,000 Status Quo NWCWD Hybrid Approach FCLWD Greeley ELCO Loveland Cost, rounded to nearest $100 ($) Water Supply Costs for 1" Commercial Taps in Northern Colorado Future RWR/CIL Adjustments It is recommended that the CIL rate be reviewed every two years, along with the other City biennial fee review process, and adjusted as needed to reflect changes to construction costs, water rights and projected RWR (related to growth projections). February 14, 2017 Page 11 It is recommended that the RWR schedules should be reviewed every 5 to 7 years and changed if necessary, since changes to average water use are usually the result of long-term water conservation and thus less volatile than the factors underlying the CIL rate. This review would assess any potential changes in consumption, investigate the appropriateness of predictor variables, and if necessary, reflect any changes in updated equations. It is also recommended to utilize the previous 10 years of data when performing these updates. Affordable Housing Impacts Although Utilities needs the proposed changes to the RWR and CIL rate to develop adequate water supply for future development, it is recognized that these changes will increase the overall cost of housing within the Utilities water service area. These cost increases affect both Affordable Housing projects (as defined in City Code) and the affordability of housing in Fort Collins. According to the Social Sustainability Department, about 95 percent of future Affordable Housing projects will be multi-family. Although the costs for all housing (including Affordable Housing projects) in the Utilities water service area will increase with the proposed changes, the cost increases for these projects are diminished by the 39 percent reduction in the RWR calculation (for volume of water required). Utilities staff will be part of an internal task force being created by the Social Sustainability Department to analyze and address fees and housing affordability. Outreach Utilities staff presented the proposed changes to the RWR and CIL rate to the Water Board on October 6, 2016. Based on input from their meeting, Utilities staff made some changes to the proposal and postponed an October 25, 2016 City Council work session until after presenting to the Council Finance Committee and to consider timing with multiple rate changes occurring at the City (which will also be discussed during the February 14 work session). Besides the Water Board meeting in October, more recent outreach has included presenting the proposed changes to:  Week of January 23: Many of the ditch companies (during their annual stockholder meetings) from which Utilities has historically accepted shares for dedication toward meeting the RWR;  January 27: Fort Collins Chamber of Commerce  February 8: Northern Colorado Home Builders Association (did not occur before this AIS)  Various: contact with several local developers and water right holders The input gathered so far has mainly included concerns about the increased costs to housing in Fort Collins, not understanding the existing water system portion of the CIL rate, and the effect a cash only system will have on local water right values. Staff is currently working on scheduling other presentations for gathering additional input from stakeholder groups like the Fort Collins Board of Realtors and Downtown Development Authority. Also, similar outreach to City boards and commissions such as the Water Board, Economic Advisory Commission, and the Affordable Housing Board will be conducted based on the direction given by Council. The input gathered from the outreach efforts will be provided as part of the final City Council actions that will be required for adoption of changes. STAFF RECOMMENDATION Utilities staff recommends the following changes:  Adjust Raw Water Requirement (RWR) schedules to reflect recent (lower) water use o Use number of bedrooms for indoor component of residential schedule  Adjust the Cash-in-Lieu (CIL) rate per a hybrid cost approach o Increase CIL rate to $16,700 per acre-foot of requirement  Accept cash only (and existing City-issued water certificates and credits) for RWR satisfaction  Review and adjust (if necessary) the CIL rate biennially  Review and adjust (if necessary) the RWR schedules every 5 to 7 years February 14, 2017 Page 12 In addition, it is recommended the name of this Utilities development fee be change in City Code from Raw Water Requirements to “Water Supply Requirements”, since developing adequate and reliable water supplies requires more than just acquiring “raw water”. Implementation Alternatives The following are three potential alternatives to implementing the recommended changes:  Adopt changes to RWR and CIL rate and implement immediately  Adopt changes to RWR and CIL rate, but delay implementation by a few months  Adopt changes to RWR and CIL rate, but delay implementation by several months NEXT STEPS Staff will consider City Council input and conduct additional public outreach prior to returning to City Council for final approval of the changes to the RWR and CIL, which is likely to occur in the next few months. The ongoing discussions with the surround Districts will continue and Utilities will be part of the Affordable Housing task force mentioned above. ATTACHMENTS 1. Fort Collins Area Water Districts Map (PDF) 2. Residential RWR Schedule (PDF) 3. Non-Residential RWR Schedule (PDF) 4. Water Rights and Conversion Factors (PDF) 5. BBC Research Memo re: Cash-in-Lieu charges, February 7, 2017 (PDF) 6. Glossary of Water Resources Terms (PDF) 7. Powerpoint presentation (PDF) ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! Utilities electric – stormwater – wastewater - water 700 Wood St. PO Box 580 Fort Collins, CO 80522 970.221.6700 970.221.6619 – fax 970.224.6003 TDD utilities@fcgov.com fcgov.com/utilities RESIDENTIAL RAW WATER REQUIREMENTS (RWR) SCHEDULE 1 Single Family, Duplex, & Multi-Family Effective January 1, 2016 Raw water is required for the increase in water use created by new development and to ensure a reliable source of supply in dry years. The Raw Water Requirement (RWR) formulas listed below include all residential categories: single family, duplex and multi-family dwelling units. Irrigation taps needed for common area greenbelts that are part of Single-Family developments are assessed water rights on a Non-Residential basis by tap size (see Non-Residential RWR Schedule). Irrigation taps for common area greenbelts of Multi-Family developments are not assessed additional water rights since water rights collected for the buildings include the overall net acreage of the development which contain all lots, spaces, private streets, parking and common areas. When calculating the number of acre-feet of water needed to satisfy the Raw Water Requirement (RWR), select the appropriate formula listed below. If the net acres are unknown, add the square footage of all lots together and divide by 43,560, the number of square feet in an acre of land. STANDARD RESIDENTIAL RWR FORMULA RWR = Raw Water Requirement in acre-feet Net Acres = Area of development in acres, excluding public street rights-of-way, city maintained tracts and rights-of-way, ditches, railways or other areas typically maintained by persons other than the owner of the premises or an agent of the owner. RWR = 1.92 x [(.18 x Number of Dwelling Units) + (1.2 x Net Acres)] When used for the following categories, the formula above can be simplified as shown: Single Family: RWR = .3456 + (2.304 x Net Acres) max. lot area 1/2 acre or 21,780 sq.ft. Duplex: RWR = .6912 + (2.304 x Net Acres) Multi-Family (3 units or more): RWR = (.3456 x No. of Units) + (2.304 x Net Acres) RWR MAY BE SATISFIED BY ANY ONE, OR COMBINATION OF THE FOLLOWING: x Water rights (stock) acceptable to the City based on current conversion factors x City of Fort Collins water certificates x Cash at the rate of $6,500 per acre-foot of RWR If the Raw Water Requirement (RWR) is satisfied with water stock or city water certificates, transactions are completed at the Utilities before a water service permit is issued. If satisfied with cash, payment is made at Neighborhood and Building Services upon issuance of a building permit. 1 Summarized from Sections 26-129, 26-148 and 26-150 of the Code of the City of Fort Collins. ATTACHMENT 2 Utilities electric – stormwater – wastewater - water 700 Wood St. PO Box 580 Fort Collins, CO 80522 970.221.6700 970.221.6619 – fax 970.224.6003 TDD utilities@fcgov.com fcgov.com/utilities NON-RESIDENTIAL RAW WATER REQUIREMENT (RWR) SCHEDULE 1 For Water Services Not Included in the Residential Category Effective January 1, 2016 Raw water is required for the increase in water use created by new development and to ensure a reliable source of supply in dry years. Non-residential service shall include without limitation all commercial, industrial, public entity, group housing, nursing homes, fraternities, hotels, motels, commonly owned areas, club houses, and pools. The minimum Raw Water Requirement (RWR) for water services up to 2-inches in diameter is shown below. The RWR for services 3-inch and larger are based on the applicant’s estimate of actual use, provided that such estimate is first approved and accepted by the General Manager. Options for satisfying the RWR include turning over water rights to the City in the form of water stock or city water certificates, OR paying the equivalent cash-in-lieu-of amount. Equivalent Cash Minimum Meter Size Minimum RWR Payment at Annual Allotment (inches) (acre-feet) * $6,500/acre-foot (Gallons/Year) 3/4 0.90 or $ 5,850 293,270 1 3.00 or $ 19,500 977,550 1-1/2 6.00 or $ 39,000 1,955,110 2 9.60 or $ 62,400 3,128,170 3 and above Based on use * acre-foot = 325,851 gallons of water RWR MAY BE SATISFIED BY ANY ONE, OR COMBINATION OF THE FOLLOWING: x Water rights (stock) acceptable to the City based on current conversion factors x City of Fort Collins water certificates x Cash at the rate of $6,500 per acre-foot of RWR If the RWR is satisfied with water stock or city water certificates, transactions are completed at the Utilities before a water service permit is issued (refer to schedule of water rights and conversion factors acceptable to the City). If the RWR is to be satisfied with cash, payment is made at Neighborhood and Building Services upon issuance of a building permit. ANNUAL ALLOTMENT/SURCHARGE (related to Monthly Billing) The RWR establishes an annual gallon allotment for each tap and subsequent monthly water account. A surcharge of $3.06 per 1,000 gallons will be assessed on a customer’s monthly water bill when an account uses more water in a given calendar year than the gallons allotted for a particular tap size. The surcharge rate is billed in addition to the customer’s regular monthly tiered water rate. Once the annual allotment has been exceeded and the water surcharge appears on an account, the surcharge will continue to be billed each month through the end of that calendar year. Additional water stock, city certificates, or cash may be turned in to increase the annual allotment. 1 Summarized from Sections 26-129, 26-149, and 26-150 of the Code of the City of Fort Collins. ATTACHMENT 3 Utilities electric – stormwater – wastewater - water 700 Wood St. PO Box 580 Fort Collins, CO 80522 970.221.6700 970.221.6619 – fax 970.224.6003 TDD utilities@fcgov.com fcgov.com/utilities WATER RIGHTS AND CONVERSION FACTORS ACCEPTED BY THE CITY FOR SATISFACTION OF RAW WATER REQUIREMENTS (RWR) Effective January 1, 2016 Arthur Irrigation Company (see Note) 3.442 Acre-Feet / Share Larimer County Canal No. 2 (see Note) 42.687 Acre-Feet / Share New Mercer Ditch Company (see Note) 30.236 Acre-Feet / Share North Poudre Irrigation Company 5.00 Acre-Feet / Share NCWCD Units (CBT – Colo. Big Thompson) 1.00 Acre-Feet / Unit (share) Pleasant Valley and Lake Canal Company 39.74 Acre-Feet / Share Warren Lake Reservoir Company 10.00 Acre-Feet / Share City of Fort Collins Water Certificates Face Value of Cert. (in acre-feet) City of Fort Collins Josh Ames Certificates 0.5625 Acre-Feet per certificate or each certificate can satisfy 1/8 acre of land Note: The City does not accept treasury shares (inactive shares held by these companies) as of December 18, 1992. A provision in the final decree of Water Court Case No. 92CW129 prohibits the City from acquiring such treasury shares and using them for municipal purposes. February 7, 2017 Mr. Lance Smith and Mr. Donnie Dustin Fort Collins Utilities Re: Fort Collins Utilities Cash-in-Lieu Charges for Water to Serve New Development Dear Mr. Smith and Mr. Dustin: Fort Collins Utilities (FCU) retained BBC Research & Consulting (BBC) to review its cash-in-lieu requirements for providing water service to new developments. BBC met with City of Fort Collins legal staff, and with FCU’s water resource staff, to discuss this issue and gather information. We also reviewed data and documents provided by water resources staff. This letter summarizes BBC’s analysis and evaluation based on this information. BBC’s study was intended to help FCU answer four fundamental questions: What is the appropriate method for establishing FCU’s cash-in-lieu requirements? How valuable are FCU’s water resources (e.g. water rights and raw water facilities)? How would the answers to these questions change FCU’s cash-in-lieu requirements? How can FCU update its cash-in-lieu charges in future years? The remainder of this letter provides BBC’s answers to each of these questions, Method for establishing the cash-in-lieu requirement. Based on BBC’s 2015 research for the City of Greeley, FCU currently has one of the lowest, if not the lowest, cash-in- lieu charges for water supplies to serve new residential development among the larger and faster growing communities in northern Colorado (see Appendix). However, as BBC discussed with the City attorney’s office, the legal framework for impact fees —such as cash-in-lieu charges — is clear. These fees or charges cannot be based on an evaluation of what other utilities, even in the same “neighborhood”, are charging. Instead, it must be based on a fair apportionment of the utility’s own costs to serve new development. ATTACHMENT 5 PAGE 2 Courts have recognized two approaches to establishing impact fees such as cash-in-lieu charges — the equity buy-in approach and the incremental cost approach. Equity buy-in approach. This approach is often used in circumstances where the public entity or utility has available capacity to serve at least a portion of the needs required by new development. In such circumstances, the buy-in approach places an overall value on the existing system, and then calculates the share of that system that will be used by new development to determine the buy-in charge. In most years, FCU appears to have enough water rights to be able to serve foreseeable future development. However, to meet its buildout water demands under drought conditions, FCU will also require the “firming” that the proposed storage project would provide, along with other infrastructure improvements and selected additional water rights to optimize the water resource portfolio.1 Given FCU’s specific circumstances, the appropriate method for establishing potential cash-in- lieu charges under the buy-in approach is to estimate the value of the combined water rights and storage system when the system is fully completed (e.g., after the proposed storage project and other infrastructure projects are developed and remaining water rights are purchased). The ultimate value of the system can then be apportioned between new development and existing customers based on the firm yield of the system and the firm yield requirements of the customers. This approach implicitly recognizes that both existing and new customers will benefit from the new storage project and other additions to the water resource portfolio, as well as from the existing water rights portfolio, and treats these customers in the same fashion. It also avoids the need for a complicated, and potentially controversial, apportionment of the values of existing and new water supply components between new and existing customers. Incremental cost approach. One important disadvantage of the equity buy-in approach, specific to FCU’s situation, is that it may raise more money than is actually needed for the future projects and water rights acquisitions required to complete the water supply system for buildout demand. As discussed in greater detail later in this report, this situation arises because the future projects FCU is developing are highly efficient (from an economic standpoint) and can provide additional firm yield at a lower cost per acre foot than the existing system can currently deliver. Under these circumstances, FCU may want to consider establishing its cash-in-lieu charges based on an incremental cost approach, the most common alternative to the equity buy-in approach in setting impact-type fees. The incremental cost approach considers only the additional cost that a public entity (or utility) must pay in order to increase its capacity to serve 1 In addition to the enlargement of Halligan Reservoir (or similar), FCU anticipates participating with other municipalities in a management project for the use of converted Water Supply and Storage Company shares, potential future measuring devices and by-pass facilities on the Poudre River, and obtaining some additional water rights. PAGE 3 new development while maintaining the same level of service that it currently provides to its existing customers. Estimated value of FCU’s water resource system. From the standpoint of this analysis, there are two basic components in the water resource portfolio required to serve FCU’s existing customers and new development: FCU’s existing water rights and storage facilities, and the proposed new storage project and other anticipated projects and water rights needed to complete the water supply system. Estimated minimum value of FCU’s existing water resource portfolio. As detailed in Figure 1 on the following page, BBC’s minimum estimate of the current value of Fort Collins existing water rights and storage facilities is approximately $1.2 billion. This minimum value estimate is reasonably consistent with the value of “around $1 billion” cited in the 2012 Update to the Water Supply and Demand Management Policy Report.2 BBC is familiar with the current active markets for three of the larger water rights holdings in FCU’s portfolio – Colorado-Big Thompson Units (C-BT), shares in the North Poudre Irrigation Company (NPIC), and shares in the Water Supply and Storage Company (WSSC). Based on recent market values for these supplies, BBC estimates the current market value for this portion of FCU’s water rights portfolio to be about $800 million. Most of the other water rights and storage facilities in FCU’s portfolio do not have well defined markets, and in some cases may not have been traded at all in recent years. To obtain an estimate of the overall value of FCU’s portfolio, BBC has developed minimum and maximum estimates of the value of these other rights and facilities based on our experience with other water supplies used by Colorado’s Front Range communities. The largest contributor to the remaining value of FCU’s water resource portfolio (excluding the well-defined sources described previously) is its Poudre River direct flow rights. Most of these are very senior water rights that yield nearly as much supply during dry years as under average or “normal” hydrologic conditions. Senior direct flow rights such as these are very seldom, if ever, traded – though there would undoubtedly be a substantial market for them if they became available. To develop a minimum estimate of the value of FCU’s water rights portfolio, we have conservatively assumed a value for these rights of $20,000 per acre foot of average yield – corresponding to a total value of $226 million for these rights. FCU’s other water rights and facilities that can currently contribute to its treated water supply include its Reuse Plan arrangement with Platte River Power Authority, its Joe Wright-Michigan Ditch System, its shares in the Pleasant Valley & Lake Canal Company and the Chaffee Ditch, and shares in a number of other irrigation systems sometime referred to as the “South Side Ditches.” 2 See page 28 of the 2012 report. PAGE 4 These systems include the Arthur Irrigation Company, Larimer County Canal No. 2, the New Mercer Ditch Company, and the Warren Lake Reservoir Company. While BBC is not aware of any recent transactions involving any of these supply sources, we believe the value of the supply from the Reuse Plan may be roughly equivalent to the value of shares in the recent Windy Gap Firming Project, or approximately $25,000 per acre foot of yield. The shares in the Joe Wright-Michigan Ditch System are firmed by storage, and likely are worth at least $10,000 per acre foot. We believe a conservative, minimum value estimate for the remaining treatable water supplies would be about $5,000 per acre foot of average annual yield. Combining the various minimum value estimates described above, BBC believes a current, minimum value for FCU’s existing water resource portfolio is about $1.23 billion. Estimated minimum value of anticipated additions to water resource portfolio. As discussed previously, FCU anticipates the completion of several infrastructure projects and the purchase of selected additional water rights to complete the system and serve buildout demands. FCU projects the expansion of Halligan Reservoir will ultimately cost approximately $46.2 million, FCU’s participation in the WSSC management project is roughly estimated to cost about $2.6 million, development of future measuring devices and by-pass facilities on the Poudre River is anticipated to cost approximately $2.3 million and the future water rights purchases are projected to cost about $20.4 million. These cost estimates for future additions total approximately $71.5 million. To develop the minimum estimate of these future costs, BBC removed contingency factors previously estimated by FCU from the cost projections. Adding these projected costs for additions to the water supply system, BBC’s minimum estimate of the current value of the ultimate system is about $1.31 billion. PAGE 5 Figure 1. Estimated Minimum Value of FCU’s Water Resource System Notes: a/ Current market price -- high by historic standards. b/ Latest data from FCU. Generally trades at value of embedded C-BT (3 units, after shrink). c/ Approximate 2015 value, may be higher now. d/ Min. estimate of value. These types of WR don't trade, but are very firm. e/ Firm/reusable supply. Value est. based on WGFP. f/ Value includes storage and firming. g/ No known market for most of these. This is an estimated minimum value. Includes PV&LCC and Chaffee Ditch. h/ Latest estimate from FCU, excludes contingencies. Volume Average Supply Source (Shares) Yield per Share per AF Total Value Current System in 2016 Known Market Values C-BT 18,855 14,330 $25,000 $32,894 $471,375,000 a/ NPIC 3,564 19,850 $88,000 $15,799 $313,610,000 b/ WSSC 27 2,240 $600,000 $7,144 $16,002,000 c/ Subtotal 36,420 $21,993 $800,987,000 Estimated Minimum Market Values Poudre River Direct Flow 11,300 $20,000 $226,000,000 d/ PRPA Reuse Water 2,310 $25,000 $57,750,000 e/ Joe Wright/Michigan Ditch 5,500 $10,000 $55,000,000 f/ Other Sources Available for Treatment 18,970 $5,000 $94,850,000 g/ Total Minimum Estimated Value for Current System 74,500 $16,572 $1,234,587,000 Future System Additions Future Water Rights Acquisitions $20,400,000 h/ Infrastructure Projects Proposed Firming Project (Halligan) $46,200,000 h/ WSSC Management Project $2,600,000 h/ River By-pass Facilities $2,300,000 h/ Minimum Value for Future System Additions $71,500,000 Minimum Estimated Value for Completed System $1,306,087,000 Estimated Value PAGE 6 Potential maximum value of FCU’s water resource portfolio. To estimate the current, maximum value of the portfolio, BBC made the following modifications to the previous minimum value assumptions. First, we assumed the Poudre River direct flow rights could be worth as much as $30,000 per acre-foot, approximately on par with the current value of C-BT supplies on an average annual yield basis. We added 25 percent to the minimum value estimates for supplies from the PRPA Reuse Plan and Joe Wright/Michigan Ditch System. We also assumed a maximum value for the collection of other water rights and facilities that provide water available for treatment (excluding C-BT, NPIC and WSSC supplies) of $7,500 per acre foot of average annual yield (rather than the $5,000 per acre foot estimate used to derive the minimum value estimate). For the future system additions, we included a 25 percent contingency factor on the projected costs for infrastructure and water supply additions to the water resource portfolio (e.g. Halligan Reservoir expansion, WSSC Management Project, river measurement and by-pass facilities and selected water rights acquisitions). With these modified assumptions, we derive a potential maximum value for the ultimate water resource portfolio of about $1.51 billion, as shown in Table 2. PAGE 7 Figure 2. Estimate Range of Potential Values for FCU’s Water Resource System Value per acre-foot of firm yield. Figure 3 summarizes the value estimates for Fort Collins water resource portfolio, and converts those estimates into values per acre-foot of firm yield. The anticipated additions to the portfolio are expected to add substantially to the firm yield of the system — increasing total firm yield from about 30,800 AFY to 38,600 AFY — at a comparatively low cost. The current estimate of the ultimate value of the completed system is between $33,800 and $39,200 per acre-foot. Supply Source Minimum Maximum Difference Current System in 2016 Known Market Values C-BT $471,375,000 $471,375,000 $0 NPIC $313,610,000 $313,610,000 $0 WSSC $16,002,000 $16,002,000 $0 Subtotal $800,987,000 $800,987,000 $0 Other Water Resources Poudre River Direct Flow $226,000,000 $339,000,000 $113,000,000 PRPA Reuse Water $57,750,000 $72,187,500 $14,437,500 Joe Wright/Michigan Ditch $55,000,000 $68,750,000 $13,750,000 Other Sources Available for $94,850,000 $142,275,000 $47,425,000 Treatment Total for Current System $1,234,587,000 $1,423,199,500 $188,612,500 Future System Additions Proposed Firming Project (Halligan) $46,200,000 $57,750,000 $11,550,000 WSSC Management Project $2,600,000 $3,250,000 $650,000 River By-pass Facilities $2,300,000 $2,875,000 $575,000 Future Water Rights Acquisitions $20,400,000 $25,500,000 $5,100,000 Totals for Completed System $1,306,087,000 $1,512,574,500 $206,487,500 Estimated Range of Values PAGE 8 Figure 3. Range of Value and Estimated Value per Acre-foot of Firm Yield Potential Cash-in-Lieu Charges for New Development. BBC reviewed FCU’s current approach for establishing cash-in-lieu fees for new development and developed recommendations regarding potential modifications. FCU’s current approach. FCU currently determines the raw water requirements (RWR) for new residential development based on a formula established in the 1980s. That formula, which can be applied to detached single family residential developments, duplexes or multifamily developments, is: RWR = 1.92 x [(.18 x Number of Dwelling Units) + (1.2 x Net Acres)] For single family residential developments, the formula simplifies to: RWR = .3456 + (2.304 x Net Acres)3 The RWR for commercial developments is based on meter size, with specified RWR volumes (or corresponding cash-in-lieu charges) for commercial properties that will use ¾ inch to 2 inch taps. RWR for facilities requiring taps larger than 2 inches are determined through a case-by- case evaluation. BBC has focused primarily on the RWR for single family residential development. At least some of our observations, however, may also apply to the RWR for other types of development. Conceptual approach to establishing RWR. During a previous assignment for the City of Greeley in 2015, BBC reviewed the residential water dedication and cash-in-lieu requirements for the 22 of the largest and fastest growing municipal water providers in the northern Front 3 The formula is subject to the restriction that the maximum lot area not exceed ½ acre. Current System Anticipated Additions Completed System Estimated Value Minimum $1,234,587,000 $71,500,000 $1,306,087,000 Maximum $1,423,199,500 $89,375,000 $1,512,574,500 Firm Yield (AFY) 30,800 7,800 38,600 Value per AFY Minimum $40,084 $9,167 $33,836 Maximum $46,208 $11,458 $39,186 PAGE 9 Range. That review, which included FCU, found that 19 of the 22 communities impose a water dedication requirement and/or a cash-in-lieu fee for water resources for new residential developments in their service areas.4 While the volume of water required for new development varied among the communities included in BBC’s prior evaluation, there were three basic methods of determining the amount of water to be dedicated for residential development (and/or the corresponding cash-in-lieu charge). Requirement based on overall gross or net acreage of new development. This was the simplest approach for establishing the amount of water to be dedicated (or the total cash- in-lieu charge). Greeley, Longmont and Windsor use this approach. Requirement based on number of dwelling units or taps. This method, which does not account for differences in lot size5, was the most common approach for establishing the water dedication/CIL volume. Northern Colorado water providers using this approach included Broomfield, Dacono, Eaton, Erie, Evans, Fort Collins-Loveland Water District, Fort Lupton, Frederick, Johnstown, Lafayette, Left Hand Water District and Severance. Requirement based on number of units and lot size. FCU, along with three other northern Colorado water providers, factor in both the number of dwelling units and their lot size to determine the water dedication requirements. Apart from FCU, the providers using this approach were Firestone, Loveland and North Weld County Water District. Two of the providers (Firestone and North Weld County Water District) specify three or more ranges of lot sizes with differing water dedication requirements for each range. Loveland uses a formula more similar to FCUs, but with different coefficients for lots below or above 15,000 square feet. Fort Collins has recently decided to switch from the number of units to the number of bedrooms in establishing their water dedication requirements. By considering the number of bedrooms and lot sizes, the approach used by FCU (similar to the other three providers mentioned in the last bullet above which include number of units and lot size) explicitly recognizes the separate indoor and outdoor aspects of residential water use. In our view, this approach to determining the water dedication requirement is the most conceptually sound of the three basic methods. 4 The three communities that do not levy a specific water dedication/cash-in-lieu fee were Boulder, Central Weld County Water District and Louisville. However, these three communities also levied the highest plant investment fees (PIFs) for new residential water service in the region – suggesting they are recovering water resource-related costs through their PIFs. 5 Some of these providers do distinguish between 5/8” taps and ¾” taps, which could be associated with differences in lot size. PAGE 10 Findings and recommendations. BBC believes FCU should revise its cash-in-lieu charges at this time, and makes the following recommendations. The water usage assumptions (developed more than 20 years ago) should be adjusted to reflect changes in water use per account. The formulas that FCU uses to establish RWR and cash-in-lieu requirements are theoretically sound. The “water supply factor” (the 1.92 term in the RWR formulas) likely remains appropriate to provide a contingency for increased demand under drought conditions, treatment and distribution water losses and other factors. Note: FCU has undertaken this analysis and determined more recent water use requirements for different types of uses. For example, single family residential requirements appear to have declined by at least 25 percent, relative to the assumptions built into the current RWR equations. FCU should convert to a cash only system for providing water resources for new development. FCU has specific plans for completing its water resource system, and these plans are highly efficient from an economic standpoint (as shown previously in Figure 2). What FCU needs is cash to pay for these plans, rather than additional water rights that do not necessarily best suit system needs. We recognize, however, that FCU has previously provided a number of water development credits (e.g. water certificates and credit accounts) that will need to be accommodated. The cash-in-lieu equivalent value should be revised. BBC believes FCU could be justified in charging as much as the full buy-in value for the completed water system (e.g. between $33,800 and $39,200 per acre-foot of firm yield requirements). However, we also recognize that setting the cash-in-lieu charge at this level would both represent a significant change from the current charge and may impact economic development more severely than other approaches discussed below. The incremental cost approach, outlined on page 2 of this report, may be a more practicable alternative to setting the revised cash-in-lieu value. This approach would establish the cash-in- lieu charge at a level sufficient to simply fund the anticipated additions to the water supply system. To implement this approach, FCU would need to estimate the raw water requirements for future development, net of the requirements likely to be met from non-cash sources (e.g. outstanding credits and credits for redeveloped properties). FCU would then divide the projected costs for completing the system (between $72 and $89 million per Figure 3) by the projected net raw water requirements to establish the cash in lieu charge per acre foot. Inherent in the incremental cost approach is the recognition that the incremental costs are being reduced by leveraging the excess capacity in the existing water rights portfolio that is the result of effective water conservation from existing customers. As such, the incremental cost approach understates the full cost of new development by not recognizing the value of the portion of the existing water rights portfolio which will be leverage to serve such growth. PAGE 11 To address this understatement of the full cost of new growth, FCU could also consider a modified “buy-in” or hybrid approach. Under such an approach, the cash-in-lieu charge would include the incremental cost of anticipated additions to the system (as described above) – along with an additional charge to capture some of the benefit new development will also receive from using FCU’s existing water rights and facilities. For example, FCU has estimated that new development will use about 6,200 acre-feet of the firm yield of the existing system (prior to the anticipated system additions). Although FCU could be justified to charge as much at the full buy- in value of the City’s existing system (e.g., between $33,800 and $39,200 per acre-foot) for this existing component of their system, it could consider charging less (e.g., the FCU’s historic CIL charge of $6,500 per acre-foot), which would result in an additional charge to new development for use of the existing water rights system of approximately $40.5 million. When added to the incremental costs for system additions anticipated by FCU, the combined amount of revenue to be required under this hybrid approach would be between $112.0 and $129.9 million. Based on FCU’s updated estimate of the water requirements to serve future new development (7,800 AF), the revised CIL charge under this version of a hybrid approach would be between $14,400 and $16,700 per acre-foot of raw water requirements. Figure 4. Potential Cash-in-Lieu Charges based on Alternative Approaches Notes: * Based on projected average RWR of 0.54 acre-feet per new home. Updating FCU’s cash-in-lieu charges in the future. Assuming FCU implements the modified “buy-in” or hybrid approach just described, or a similar revision to its current charges, it will likely wish to update those charges more frequently than it has done in the past. There are basically two fundamental elements to the proposed charge based on the incremental or hybrid approaches discussed above — the raw water requirements (volume of water required) and the cash equivalent value. BBC believes the raw water requirement element should be reviewed every five to ten years to detect fundamental changes in water usage patterns. More frequent reviews may not be productive, due to the inevitable variability in year to year water use due to changing summer weather conditions. "Buy-In" Incremental Modified "Buy-in" Approach Approach or "Hybrid" Approach Value per Acre-foot Minimum $33,800 $9,200 $14,400 Maximum $39,200 $11,500 $16,700 Average Value per New Home* Minimum $18,300 $5,000 $7,800 Maximum $21,200 $6,200 $9,000 PAGE 12 The full buy-in approach, based on the overall value of FCU’s water resources, establishes the maximum value per acre-foot that FCU could use in setting its cash-in-lieu charges. Given the relatively high values that result from the full buy-in approach ($33,800 to $39,200 per acre- foot, as described on page 7) compared to the expected charges that would result from the incremental or hybrid approaches, it is not likely to be necessary for FCU to reappraise the value of its full water resource portfolio on a regular basis. Since the price of C-BT units is the only value in the overall water resource valuation that is routinely updated and publicly available, FCU might require consulting assistance if and when it does decide to update the estimated value of its overall water resource portfolio. Fortunately, updating the cash-in-lieu charge based on the incremental or hybrid approaches is easier than updating the estimated value of the overall water resource portfolio. Under the incremental approach, the cash equivalent value is primarily determined by cost of future additions to the system, divided by the raw water requirements expected to be met with cash- in-lieu payments. The hybrid approach is determined in a similar fashion to the incremental approach, but just adds the existing value component to the numerator of the equation. FCU is likely to continue to update and refine the cost estimates for the Halligan Reservoir Expansion, and other anticipated infrastructure projects, and can use these updated estimates to update the cash-in-lieu charge as needed. BBC believes the cash-in-lieu charge should be reviewed and approved by the City’s policymakers on an annual basis as a matter of sound policy, but recalculation of the charge should only be necessary if there appear to be substantial changes in raw water requirements or the costs of completing the system. It is worth noting that many of the other water providers in the Northern Front Range set and adjust their cash-in-lieu charges based on the price of C-BT. While this may be appropriate for water providers whose primary supply is C-BT, we do not believe it is an appropriate benchmark for FCU. Further, the dwindling number of C-BT units available for transfer has helped fuel a rapid escalation in C-BT prices in recent years, and we believe C-BT prices may become increasingly unstable in the future as that particular source of supply becomes more and more scarce. Sincerely, Douglas L. Jeavons Managing Director PAGE 13 Appendix – Cost of Obtaining Residential Water Service from Northern Colorado Water Providers (from BBC’s 2015 study for City of Greeley) City of Fort Collins Utilities Changes to the Utilities Raw Water Requirements City Council Work Session February 14, 2017 Glossary of Water Resources Terms 1-in-50 Year Drought Criterion - criterion adopted in the current Water Supply and Demand Management Policy that defines the level of risk for the City’s water supply system; a drought is a period of below average runoff that can last one or more years and is often measured by its duration, average annual shortage and cumulative deficit below the average; a 1-in-50 drought corresponds to a dry period that is likely to occur, on average, once every 50 years; although the Poudre River Basin has several drought periods in its recorded history, it is difficult to assess whether any of these droughts were equal in magnitude to a 1-in-50 drought; the 1985 Drought Study developed the 1-in-50 drought used in assessing the Utilities water supply system; this drought period is six years long and has a cumulative deficit of 550,000 acre-feet, which represents annual river volumes that are about 70% of the long-term average for the Poudre River; see also “Statistically Based Drought Analysis” Acre-Foot or Acre-Feet (AF) - volume of water equal to about 326,000 gallons; one acre- foot can supply around three to four single family homes in Fort Collins per year; for storage comparison the maximum volume of Horsetooth Reservoir is about 157,000 acre- feet Active Capacity - the usable capacity of a reservoir for storage and regulation of inflows and releases that does not include any capacity below the reservoir’s lowest outlet (which is known as dead capacity) Cash-in-lieu rate (CIL) - the cash equivalent of the water supply required to meet the needs of development; see also Raw Water Requirements Carryover - used in reference to storage; it is the ability to save water in storage for use at a later time, most notably in following years Change in Water Right - used to refer to changing water rights under Colorado water law from agricultural to municipal water use; see also “Legal Return Flows or Return Flow Obligations” CIP - Capital Improvement Project, which typically refers to a project to improve Utilities facilities (e.g., treatment plant capacity expansion) Colorado-Big Thompson (CBT) Project - a Bureau of Reclamation project that brings water from the Colorado River basin to the east side of the continental divide via a tunnel and the Big Thompson River to several locations including Horsetooth Reservoir; 1 ATTACHMENT 6 operated by the Northern Colorado Water Conservancy District (or Northern Water); Fort Collins Utilities currently owns 18,855 units of the 310,000 total units in the CBT project Cubic Feet per Second (cfs) - volumetric flow rate equal to one cubic foot flowing every second; for comparison, an average peak flow rate on the Poudre River at the Lincoln Street gage (downtown) is around 1,900 cfs and a median winter-time low flow rate in December at the same location is around 7 cfs Direct Flow Rights - water rights that can be taken for direct use, as opposed to storage rights that can be taken for later use; see also “Senior Water Rights” DEIS or EIS - Draft Environmental Impact Statement or Environmental Impact Statement; a report detailing the findings of the NEPA permitting process; report can be reviewed by public for their comments which are typically addressed in a Final Environment Impact Statement; see also “NEPA” ELCO - East Larimer County Water District; see also “Tri-Districts” FCLWD - Fort Collins-Loveland Water District; see also “Tri-Districts” Firm Yield - a measure of the ability of a water supply system to meet water demands through a series of drought years; for the Fort Collins Utilities, this means being able to meet the planning demand level and storage reserve factor through the 1-in-50 year drought criterion; see also “1-in-50 Year Drought Criterion”, “planning demand level” and “storage reserve factor” GMA - short for Growth Management Area, which is the planned boundary of the City of Fort Collins’ future City limits gpcd - gallons per capita per day; a measurement of municipal water use; for the Fort Collins Utilities, gpcd is calculated based on the total annual treated water produced at the Water Treatment Facility for use by all Water Utility customers (minus large contractual customers and other sales or exchange agreements) divided by the estimated population of the Water Utility’s service area and 365 days LEDPA - Least Environmentally Damaging Practicable Alternative, which is what is allowed to be permitted through the NEPA permitting process; see also “NEPA” Legal Return Flows or Return Flow Obligations - refers to legal requirements when changing water rights from agricultural to municipal use; this process requires obtaining a decree from Colorado Water Court that involves detailed analysis of the historic agricultural water use, including the water diversions, amount used by the crops, and the return flow patterns of the water not used by the crops; terms in the decree to prevent municipalities from taking more water than was historically taken and replacing return flows in the right amount, location and time to prevent injury to other water rights 2 NEPA - National Environmental Policy Act; federal legislation that established environmental policy for the nation; it provides interdisciplinary framework for federal agencies to prevent environmental damage and contains “action-forcing” procedures to ensure that federal agency decision-makers take environmental factors into account NISP - Northern Integrated Supply Project Northern Water or NCWCD - short for Northern Colorado Water Conservancy District (NCWCD); Northern Water operates the Colorado-Big Thompson (CBT) Project and is involved in several other regional water projects on behalf of their participants; see also “Colorado-Big Thompson (CBT) Project” NPIC - North Poudre Irrigation Company; an irrigation company that supplies water to farmers north of Fort Collins and is the owner of all water currently stored in Halligan Reservoir; the City currently owns about 36% of the shares in the company NWCWD - North Weld County Water District; see also “Tri-Districts” Planning Demand Level - level of water use (demand) in gpcd used for water supply planning purposes that is a factor in determining the amount of water supplies and/or facilities needed; see also “gpcd” PIF (or PIFs) - Plant Investment Fee(s), which are one-time fees assessed on developments for the cost of the utility infrastructure needed to serve that development Raw Water Requirement (RWR) - requires new development to turn in water rights, a payment of cash-in-lieu of water rights, or use of City-issued water certificates or credits to support the water needs of that development; cash is used to increase the firm yield and long-term reliability of the City’s supply system (e.g., purchase additional storage capacity) Storage Reserve Factor - refers to a commonly used engineering principle in designing water supply systems to address short-term supply interruptions; as defined in the Water Supply and Demand Management Policy, the storage reserve factor incorporates having 20 percent of annual demands in storage through the 1-in-50 drought which equates to about 3.5 months of winter (indoor) demands or 1.5 month of summer demands Senior Water Rights - refers to Colorado water law’s use of the “prior appropriation” or priority system, which dictates that in times of short supply, earlier water rights decrees (senior rights) will get their water before others (junior rights) can begin to use water, often described as “first in time, first in right” Southside Ditches - refers to the irrigation ditches that run through the City of Fort Collins, including the Arthur Ditch, New Mercer Ditch, Larimer County Canal No. 2 and Warren Lake Reservoir; the Pleasant Valley and Lake Canal is another ditch that runs through Fort Collins and is sometimes considered a Southside Ditch 3 Tri-Districts - the combination of the three regional water districts East Larimer County (ELCO), Fort Collins-Loveland (FCLWD) and North Weld County (NWCWD) Water Districts; these districts share the same water treatment plant called Soldier Canyon Filter Plant, which is located adjacent to Fort Collins Utilities’ Water Treatment Facility Water Rights Portfolio - the mix of water rights owned by a water supplier; typically includes water for direct use, as well as for storage for later use; for the Fort Collins Utilities, includes City owned water rights, owned and/or converted shares in agricultural rights, storage rights at Joe Wright Reservoir, and ownership in the CBT project Water Supply Factor - refers to a multiplying factor used in the assessment of raw water required by developers to reflect issues that tend to reduce the average yield of the water supplies provided to a water supplier (e.g., system losses, variable demands, etc.) WSDMP - short for Water Supply & Demand Management Policy, which provides Fort Collins Utilities guidance in balancing water supplies and demands Yield or Water Rights Yield - refers to the amount of water that is produced from a water right; the yield of water rights vary from year to year depending on the amount of water available (i.e., low or high river runoff) and the priority of the water right; see also “Firm Yield” and “Senior Water Rights” 4 1 Changes to the Utilities Raw Water Requirements Donnie Dustin, P.E., Water Resources Manager City Council Work Session February 14, 2017 HORSETOOTH RESERVOIR 2 Water Fees PLANT INVESTMENT FEES (PIF) DISTRIBUTION WATER TREATMENT TAP FEES (Water Meters) WATER METERS RAW WATER REQUIREMENTS (RWR) Source of Supply (water rights), which includes Storage and Transmission CACHE LA WATER POUDRE RIVER SUPPLY HORSETOOTH RESERVOIR 3 This work session focuses on Utilities water service area; continued discussions with other districts. Raw Water Requirements What are they? • Water rights or fee paid by new development • Amount based on use, type of development • GOAL: generate adequate funds and water rights to provide reliable water supply 4 Current Satisfaction of RWR RWR can be satisfied with: • Acceptable water rights • Cash-in-lieu of water rights • City certificates (credits) • Combination 5 Market Value of Colorado- Big Thompson (CBT) Project Units 6 0 50 100 150 200 250 300 $0 $5,000 $10,000 $15,000 $20,000 $25,000 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 Average Daily Use per Capita (gpcd) Cost Year Colorado-Big Thompson Project Unit Price vs. Fort Collins Utilities Use, Cash-in-Lieu Rate C-BT Price ($/unit) FCU CIL ($/AF) FCU Average Use Per Capita (gpcd) 6 Timeline 7 Water Rights Utilization Fee Discontinued Water Banking Year of Water – Started Evaluation of RWR Changes Water Board and Canceled Council Work Session Council Finance Committee 2013 2014 2015 2016 Jan. 2017 Overview 8 Changes Recommended: • Amount of Raw Water Requirement • Cash-in-Lieu Rate • Accepting Cash Only 9 Amount of Raw Water Required Amount of Raw Water Requirement (RWR) Future Development/RWR How much firm yield is needed for future development? • Growth in service area • Population increase ~45,000 by 2065 • Residential and commercial water use • Expected RWR from growth: • ~11,900 AF of RWR (current calculation) • But, water use has changed over time 10 Water Use Changes How has water use changed? • Analyzed 10 years water use (2006-2015) • Water use less than expected (current RWR) • Single-family: 26% less • Multi-family: 39% less • 3/4-inch tap: little change • Larger taps: 18-25% less • Suggest RWR adjustments to reflect changes • Revised expected RWR = ~7,700 AF 11 Residential indoor use better correlated to number of bedrooms 12 Amount Cash-in-of Raw Lieu Water (CIL) Required Rate Cash-in-Lieu: Past, Future, Present • Past: accepted water rights and cash-in-lieu • Incremental cost of water rights • Future: water supply system complete • Equity buy-in cost approach • Similar to plant investment fees • Present: transition from incremental to buy-in • Hybrid of both 13 Future Water Supply Needs How much will it cost to increase firm yield for new development? $63.9M: Infrastructure (e.g., storage) + $25.5M: Future water rights (requires storage) + $40.5M: Value from existing portfolio $129.9M: Total cost to increase firm yield 14 Future supplies would not provide adequate yield without existing portfolio Hybrid Cost Approach • Proposed Cash-in-lieu rate: = $16,700 / AF 𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉 𝑜𝑜𝑜𝑜 𝐹𝐹𝑉𝑉𝐹𝐹𝑉𝑉𝐹𝐹𝑉𝑉 𝐼𝐼𝐼𝐼𝐼𝐼𝑉𝑉𝐼𝐼𝐹𝐹𝐼𝐼𝑉𝑉𝐼𝐼𝐹𝐹 𝐼𝐼𝐼𝐼𝐼𝐼𝐹𝐹𝑉𝑉𝑉𝑉𝐼𝐼𝑉𝑉𝐼𝐼 𝐹𝐹𝐹𝐹𝐹𝐹𝐼𝐼 𝑌𝑌𝐹𝐹𝑉𝑉𝑉𝑉𝐼𝐼 = $129.9𝑀𝑀 7,800 𝐴𝐴𝐹𝐹 Cash-in-lieu Rate 15 Value from Existing Portfolio 16 30,800 AF 7,800 AF 0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 Supplies Firm Yield (acre-feet) Future Development Current Customers How is this portion of the fee calculated? • ~20% of existing firm yield and historic CIL rate of $6,500/AF • Compares with CBT = $50,000/AF • Less than full “buy-in” with future needs = $33,800/AF How will funds be used? • Offsets future impacts on existing water supply system (e.g., Michigan Ditch tunnel) Future Firm Yield = 38,600 AF 17 17 $4,300 $2,800 $9,000 $3,900 $0 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 $7,000 $8,000 $9,000 $10,000 Single family, 4br, 6,000 sq ft lot Multi-family, 100 units, 3.4 acres Cost per Unit or Tap ($) Fort Collins Utilities: Raw Water Requirement Costs for Typical Residential Developments Status Quo Hybrid Approach Cash-in-lieu (CIL) Rates: Status Quo CIL = $6,500/AF Proposed CIL = $16,700/AF 18 18 $5,900 $19,500 $15,100 $37,800 $0 $10,000 $20,000 $30,000 $40,000 Commercial Tap: 0.75" Commercial Tap: 1.0" Cost per Unit or Tap ($) Fort Collins Utilities: Raw Water Requirement Costs for Typical Commercial Developments Status Quo Hybrid Approach Cash-in-Lieu (CIL) Rates: Status Quo CIL = $6,500/AF Proposed Cost CIL = $16,700/AF $4,300 $9,000 $11,800 $13,000 $13,200 $14,200 $25,000 $0 $5,000 $10,000 $15,000 $20,000 $25,000 $30,000 Status Quo Hybrid Approach Loveland NWCWD Greeley ELCO FCLWD Cost, rounded to nearest $100 ($) Water Supply Costs for Typical Single Family Home in Northern Colorado 19 19 $19,500 $30,600 $37,800 $62,500 $64,000 $101,100 $105,000 $0 $20,000 $40,000 $60,000 $80,000 $100,000 $120,000 Status Quo NWCWD Hybrid Approach FCLWD Greeley ELCO Loveland Cost, rounded to nearest $100 ($) Water Supply Costs for 1" Commercial Taps in Northern Colorado 20 20 21 Amount Accepting of Raw Cash Water Only Required Accepting Cash vs. Water Rights Imperative to switch to cash-only system: 22 Focus on infrastructure first Need specific water rights in future Flexibility to pursue other options Can still acquire water rights Incorrect rights are inefficient; ineffective without infrastructure (storage) Storage increases supply with existing (and future) water rights Could include regional aspects Focus on best rights Staff Recommendations 1. Adjust RWR schedules based on recent use • Residential based on # of bedrooms 2. Use “Hybrid” approach cash-in-lieu rate • CIL = $16,700/AF of RWR 3. Accept cash only (and credits) 4. Periodically adjust CIL, RWR 5. “Water Supply Requirements” 23 Implementation Alternatives • Adopt changes and implement immediately • Adopt changes and delay implementation by a few months • Adopt changes and phase in changes over several months 24 Affordable Housing • Concern for both Affordable Housing (as defined in City Code) and housing affordability in Fort Collins • Future Affordable Housing projects are 95% multi-family • Cost for all housing will increase (in Utilities service area) • Multi-family cost impact will be lessened by reduced RWR • Social Sustainability creating an internal task force to address fees and housing affordability 25 Next Steps 26 Additional public outreach City Council action/adoption Changes become effective On-going: • Water District discussions • Affordable Housing task force Feb- Mar Apr- May Jul- Sep Direction Sought 27 What feedback does Council have on the proposal to: • Change the amount of raw water required? • Change the cash-in-lieu rate and methodology? • Accept cash only? • Require periodic updates to the RWR and CIL rate? 28 ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! Social Sustainability 321 Maple Street PO Box 580 Fort Collins, CO 80522 970.221.6758 TO: Carol Webb, Donnie Dustin and Lance Smith, City Water Utilities FROM: Affordable Housing Board DATE: April 19, 2017 RE: Proposed Changes to Raw Water Requirements The Affordable Housing Board very much appreciates your April 6 th , 2017 presentation to the board on the proposed changes to raw water requirements. As you are aware, housing affordability is a major issue in Fort Collins. The costs of utilities is one factor that can affect affordability. The proposed changes to the raw water requirements are a factor that will affect the financial feasibility of qualified affordable housing developments targeted for low-wage earners. The goals of the City’s 2015-2019 Affordable Housing Strategic Plan will be jeopardized if our developer partners cannot produce these units. Currently, most new affordable housing in the City is multi-family construction, which requires less water per unit than single-family homes. In recognition of this utility benefit, as well as the community need for affordable housing, water costs for these developments should not be charged at the same rate as other market-rate developments. The Affordable Housing Board recommends that the City’s water utilities staff present the following options to City Council related to the proposed raw water requirements rate increases: 1. The proposed water rate increase not be applied to any qualified affordable housing development, and that current rates be frozen for this housing type. Since affordable housing production is a small fraction of overall development in the City, we do not feel the City’s overall financial health would be jeopardized by implementing this rate freeze. Perhaps an analysis of a current project such as the Village on Redwood could best illustrate the financial impact of this policy. Or alternatively, 2. That any rate increase phasing be applied to qualified affordable housing last, and not be less than 24 months from the time when rate increases go into effect. 3. In addition, given the increased complexity of funding sources and the increased time needed to acquire them, affordable housing projects take longer to complete than market-rate projects. The Board recommends water rates for new affordable housing developments be locked at the time of the development proposal submission. Investors require developers of affordable housing to lock in their funding sources and budget amounts early in the process, so certainty of actual costs is crucial. It is extremely difficult for these development deals to manage a rate increase mid-process. We appreciate your consideration of these recommendations. The Board would appreciate being kept informed about this issue. DRAFT FOR DISCUSSION PURPOSES ONLY - 1 - ORDINANCE NO. ___, 2017 OF THE COUNCIL OF THE CITY OF FORT COLLINS AMENDING CHAPTER 26 OF THE CODE OF THE CITY OF FORT COLLINS TO MAKE VARIOUS CHANGES TO THE RAW WATER REQUIREMENT, TO HEREINAFTER BE KNOWN AS THE “WATER SUPPLY REQUIREMENT” 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, 26-147, 26-148, 26-149, and 26- 150 of the Code of the City of Fort Collins as the raw water requirements (“RWR”), and referenced in Sections 2-436, 26-74, 26-94, 26-207, 26, 632, 26-651 and 26-653; and WHEREAS, City staff has historically reviewed the water supply furnishing or development requirements periodically to ensure that the rights to use water and cash payments received by the City are sufficient; and WHEREAS, staff has completed a comprehensive and thorough review of the RWR and has determined that various changes thereto are 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; and WHEREAS, the City Manager and City staff have recommended to the City Council that the following changes be made, which include, but are not limited to, renaming the RWR as the “Water Supply Requirement.” 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 2-436 of the Code of the City of Fort Collins is hereby amended to read as follows: DRAFT FOR DISCUSSION PURPOSES ONLY - 2 - Sec. 2-436. - Creation and purposes. . . . (b) The purposes of the Board shall be to advise the City Council in matters pertaining to water, wastewater and stormwater utility policy issues and to act as a quasi- judicial body relating to certain matters. These matters shall include, without limitation, the following: (2) To act as a quasi-judicial body relating to floodplain regulation variances, stormwater fee disputes, determining raw water conversion factors and storm drainage design criteria variances; . . . Section 3. That Section 26-74 of the Code of the City of Fort Collins is hereby amended to read as follows: Sec. 26-74. - Conditions for granting permits. A permit will be granted if all of the following conditions are met: . . . (3) The new or additional use of water will not adversely impact water users within the City limits and the applicant has satisfied all raw water supply requirements imposed by this Article; . . . Section 4. That Section 26-94 of the Code of the City of Fort Collins is hereby amended to read as follows: Sec. 26-94. - Individual service lines for each building required. . . . (4) Plant investment fees, raw water supply requirements and any other applicable charges required in connection with the additional building to which service is to be provided shall be remitted as provided in this Article. For a carriage house, additional plant investment fees and raw water supply requirements, as well as monthly meter rates and any other water-related charges, shall be determined based on the addition of a new dwelling unit on the property; and . . . DRAFT FOR DISCUSSION PURPOSES ONLY - 3 - Section 5. 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). (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 $6.007.86 A deposit may be required in the amount of the charges for the anticipated water usage and rental. (c) The fees and requirements for raw water supply shall be as follows (1) To satisfy raw water requirements (RWR) Water Supply Requirement (WSR) with in- lieu cash payments Per acre-foot of RWR WSR $6,500.0016,700.00 (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 $3.067.86 (3) The annual water allotment, based on the minimum RWR WSR shall be as follows: Meter Size (inches) Annual Allotment (gallons/ year) DRAFT FOR DISCUSSION PURPOSES ONLY - 4 - ¾ 293,270294,050 1 977,550738,250 1½ 1,955,1101,539,060 2 3,128,1702,577,610 Above 2 325,851 gallons per acre foot RWR of WSR . . . Section 6. That Section 26-147 of the Code of the City of Fort Collins is hereby amended to read as follows: Sec. 26-147. - Grant of water rights; required. All owners of premises requesting original water service from the City shall, before being granted a water service permit, satisfy the assessed raw water requirement (RWR) Water Supply Requirement (WSR) as determined in this Division without cost to the City. The raw water requirements are WSR is as provided in this Division. Section 7. That Section 26-148 of the Code of the City of Fort Collins is hereby amended to read as follows: Sec. 26-148. - Raw water requirement (RWR)Water Supply Requirement (WSR); residential service. (a) Residential service for RWR WSR shall include single-family, duplex, multi- family and mobile home, and multi-family dwelling units. (1) For residential service to single family, duplex, and mobile home dwelling units, Tthe formula to calculate the WSR shall be: RWR WSR = 1.92 × [(.18 × Number of Dwelling Units) + (1.2 × Net Acres)] 1.92 x [(7.048 x Lot Size) + (12,216.9 x Bedrooms)] / 325,851 Where: DRAFT FOR DISCUSSION PURPOSES ONLY - 5 - RWR WSR = Raw water requirement Water Supply Requirement in acre-feet. Net acres Lot Size = Area of development the parcel for which water service is requested, in acres square feet, excluding public street rights-of-way, City- maintained tracts and rights-of-way, ditches, railways or other areas typically maintained by persons other than the owner of the premises or an agent of the owner. For a single-family residential lot greater than one-half acre in size, the lot size shall be deemed to be one-half acre for the purpose of this raw water requirement calculation. Bedrooms Number of bedrooms on the parcel for which water service is requested, as determined by the City. (2) For residential service to multi-family dwelling units (greater than 2 dwelling units), the formula to calculate the WSR shall be: WSR = 1.92 x [(9.636 x Lot Size) + (13,592.8 x Bedrooms)] / 325,851 Where: WSR = Water Supply Requirement in acre-feet. Lot Size = Area of the parcel for which water service is requested, in square feet, excluding public street rights-of-way, City-maintained tracts and rights-of-way, ditches, railways or other areas typically maintained by persons other than the owner of the premises or an agent of the owner. Bedrooms Number of bedrooms on the parcel for which water service is requested. (b) In the event an applicant applying for a residential water service permit has, prior to March 1, 1984, surrendered water rights or otherwise satisfied the requirements of the City under an earlier water supply furnishing or development program, then the RWR WSR for that property will be considered satisfied under this Section. Section 8. That Section 26-149 of the Code of the City of Fort Collins is hereby amended to read as follows: Sec. 26-149. - Raw water requirement Water Supply Requirement (WSR); nonresidential service. (a) Nonresidential service for WSR shall apply to all services not included in the residential category and shall include, without limitation, all service to customers for: commercial,; industrial,; public entity,; group housing, such as nursing homes, fraternities,; hotels and motels,; and mixed-use customers. (b) The minimum RWR WSR for water meters up to two and zero tenths (2.0) inches in diameter are as follows: DRAFT FOR DISCUSSION PURPOSES ONLY - 6 - Meter Size (inches) RWR (acre-feet) ¾ .90 1.0 3.002.27 1.5 6.004.72 2.0 9.607.91 (c) The RWR WSR for customers requiring a meter larger than two and zero tenths (2.0) inches, and for customers requiring two (2) or more meters, shall be determined by multiplying the applicant's estimate of peak annual use, or the total annual allotment for the meter or meters, whichever is greater, by one and ninety-two one-hundredths (1.92), provided that such estimate is first approved and accepted by the Utilities Executive Director. (d) Upon application for a water service permit after March 1, 1984, each applicant who is a nonresidential user shall be assigned an annual allotment of water equal to the greater of: the RWR WSR as determined pursuant to this Section;and any RWR WSR that was satisfied at the time of application for nonresidential water service; any increased annual allotment pursuant to Subsection (g) below; and the volume of the water furnishing requirement of the City under an earlier water supply furnishing or development program, as determined by the City. Further, in the event that, pursuant to Subsection (f) below, a nonresidential user submits more raw water than required under the provisions of this Subsection, then the annual allotment shall be determined pursuant to said Subsection (f). When a user uses more water than the annual allotment, as determined by monthly billing records in a given calendar year, an Excess Water Use Surcharge in the amount prescribed in § 26-129 will be assessed on the volume of water used in excess of the annual allotment. (e) In the case where existing water service to a property is being changed or a new water service permit is being issued, the utility shall assign an annual allotment and credit the nonresidential user towards the new water service permit as follows. If an annual allotment has been assigned, the credit towards the new water service shall be for the amount of the annual allotment for the property. If the existing credit towards the new water service is greater than the annual allotment to be assigned for the new water service permit, no cash refund or water certificates issued by the City shall be provided to the applicant. If no annual allotment has been assigned, the credit towards the new water service shall be the amount prescribed in § 26-129 for the existing meters serving the property. The credit authorized under this subsection is not transferrable. (ef) In the event an applicant applying for a nonresidential water service permit has, prior to March 1, 1984, surrendered water rights or otherwise satisfied the requirements of the City under an earlier water supply furnishing or development program, then the minimum RWR WSR for that property shall be considered satisfied under this Section. However, such nonresidential user shall be subject to the Excess Water Use Surcharge when the annual allotment is exceeded. DRAFT FOR DISCUSSION PURPOSES ONLY - 7 - (fg) A nonresidential user may increase said user's annual allotment by submitting, water rights, City certificates or cash in addition to the minimum required, water rights, water certificates issued by the City, or cash in the amount prescribed in § 26-129 for each acre-foot of WSR. Such submission, if made on or before December 31, 2007, shall be deemed to raise the user's annual allotment by an equivalent amount. Such submission, if made after December 31, 2007, shall raise the user's annual allotment by the amount of equivalent water rights submitted in acre-feet divided by one and ninety- two one-hundredths (1.92). Any increase of a user’s annual allotment will be applied to subsequent billing and other matters and shall not be applied retroactively. (gh) Notwithstanding any other provisions of this Division, water certificates issued by the City under the Agreement, dated May 10, 1971, between the City and the Josh Ames Ditch Company, shall be subject to the following: (1) If such certificates are used to meet the RWR WSR upon the annexation of land into the City, each certificate shall be accepted by the City as fulfilling the RWR WSR in the ratio of one certificate for each one-eighth (1/8) acre of land annexed, and if nonresidential service to the annexed land is requested, an annual allotment shall be imposed that is equal to the applicant’s estimate of peak annual use on the annexed land, provided that such estimate does not exceed the amount of water, as determined by the Utilities Executive Director, that can reasonably be delivered through the number and size of taps in the water service permit issued for the annexed land, that such estimate is based on the applicant’s documented intended use(s) of the annexed land, and that such estimate is first approved and accepted by the Utilities Executive Director. For the purposes of this subsection, “upon the annexation of land into the City” refers to the one hundred (100) day period beginning on the day the ordinance of annexation is approved by Council on second reading. . . . (hi) Applicants seeking a temporary water connection under Subsection 26-120(e)(1) shall meet the RWR modified WSR as set forth in this Subsection and Subsection 26- 150(a)(4) and shall be assigned an annual allotment as set forth in this Subsection. The RWR modified WSR for such applicants shall be three times the maximum estimated amount of water that would be applied to the subject native vegetation during one irrigation season, as determined by the Utilities Executive Director. The annual allotment shall for such applicants shall be the maximum estimated amount of water that would be applied to the subject native vegetation during one irrigation season, as determined by the Utilities Executive Director. Section 9. That Section 26-150 of the Code of the City of Fort Collins is hereby amended to read as follows: DRAFT FOR DISCUSSION PURPOSES ONLY - 8 - Sec. 26-150. - Raw water requirementsWater Supply Requirement (WSR); satisfaction. (a) The RWR WSR imposed pursuant to this Division may be satisfied by one (1) or more of the following methods: (1) The following rights may be transferred to the City and shall be accepted at the following rates: Colorado-Big Thompson units 1.0 acre foot per unit North Poudre Irrigation Company shares 4.0 acre feet per share Water rights acceptable to the City may be transferred to the City. The Water Board determines which water rights are acceptable to the City and determines the appropriate conversion factors to be used in determining the yield from each of the acceptable sources. The determinations of the board are final and conclusive. (2) Water certificates issued by the City may be submitted in satisfaction of the RWR WSR. The value of each certificate shall be as stated on the face of the certificate and pursuant to § 26-149(gh), if and to the extent applicable. (3) A cash payment in the amount prescribed in § 26-129 for each acre-foot of RWR WSR may be made to the City. (4) Applicants seeking a temporary water connection under Subsection 26- 120(e)(1) shall meet the RWR WSR by a payment to Utilities in the amount of six ten dollars and zeroeighty-one cents ($6.0010.81) per one thousand (1,000) gallons. (5) Transfer to the City of the rights identified in this Subsection (5), provided that the applicant meets the requirements of this Subsection (5). On or before January 1, 2019, the applicant must submit an application for a water service permit together with a request to submit rights to meet the WSR pursuant to this Subsection (5), which shall include proof, to the satisfaction of the Utilities Executive Director, that the applicant: has owned the rights intended to be transferred to the City since February 14, 2017; has been pursuing plans to develop property in the Utilities water service area as evidenced a complete application for an overall development plan, project development plan, change of use, or major amendment submitted to the City on or before February 14, 2017; and acquired said rights for the purpose of meeting the City’s water furnishing requirements for said property as set forth in an affidavit. If such a request is approved, the rights approved to satisfy the WSR for said property shall not be transferred to another property. The water rights that may be transferred to the City pursuant to Subsection (5) and the conversion factors are as follows: DRAFT FOR DISCUSSION PURPOSES ONLY - 9 - Arthur Irrigation Company shares 3.442 acre feet per share Colorado-Big Thompson units 1.0 acre foot per unit Larimer County Canal No. 2 Irrigating Company shares 42.687 acre feet per shares New Mercer Ditch Company shares 30.326 acre feet per share North Poudre Irrigation Company shares 4.0 acre feet per share Pleasant Valley and Lake Canal Company shares 39.74 acre feet per share Warren Lake Reservoir Company shares 10 acre feet per share (b) The satisfaction of the minimum RWR WSR shall be made no later than the time of issuance of the water service permit. An owner of water rights or City-issued water certificates issued by the City may submit acceptable water rights and/or City-issued water certificates them to the City, together with an application for a water service permit, and will be credited accordingly for raw water value to satisfy, in whole or in part, on the assessed RWR WSR on such application for a water service permit. Once the water rights or City-issued water certificate issued by the City and water right have been designated to satisfy the RWR WSR, or the requirements of the City under an earlier water supply furnishing or development program for water service, for a particular premises, they shall not be transferred to another property. (c) In no case shall the fact that a portion of a property was previously served with City water excuse the furnishing of water rights WSR when new water service is requested for other portions of the same property. In the event that a water user is required to apply for an additional water service permit under the provisions of this Article for premises already connected to the water utility, the user shall also be required to satisfy any increase in the assessment of RWR WSR that results from the change in use or status, prior to the issuance of the new permit. Section 10. That Section 26-207 of the Code of the City of Fort Collins is hereby amended to read as follows: Sec. 26-207. - Terms and abbreviations. The following terms and abbreviations when used in this Article shall have the meanings ascribed to them in this Section: . . . (2) Abbreviations : . . . nm. SIC shall mean standard industrial classification; on. SPIF shall mean sewer plant investment fee; po. SWDA shall mean Solid Waste Disposal Act, 42 U.S.C. § 6901 et seq.; DRAFT FOR DISCUSSION PURPOSES ONLY - 10 - qp. TOC shall mean total organic carbon; rq. TSS shall mean total suspended solids; sr. TTO shall mean total toxic organics; and ts. U.S.C. shall mean United States Code. mt. RWR WSR shall mean raw water supply requirements; Section 11. That Section 26-632 of the Code of the City of Fort Collins is hereby amended to read as follows: Sec. 26-632. - Deferral of fees. With respect to any dwelling unit which is contained within or which constitutes an affordable housing project as defined in § 26-631, the Water Plant Investment Fee ("WPIF"), Sewer Plant Investment Fee ("SPIF"), Stormwater Plant Investment Fee, the Raw Water Supply Requirement In-lieu Cash Payment, and the Electric Development Fees and Charges, as established in this Chapter, shall, upon the request of the applicant, be deferred until the date of issuance of a certificate of occupancy (whether temporary or permanent) for such unit(s) or until the first day of December of the year in which the deferral was obtained, whichever first occurs. Notwithstanding any provision in this Chapter to the contrary, in the event that, during the period of deferral, the amount of the deferred fee is increased by ordinance of the City Council, the fee rate in effect at the time of the issuance of the building permit shall apply. At the time of application for any such deferral, the applicant shall pay to the City a fee in the amount of fifty dollars ($50.00) to partially defray the cost of administration. No person shall knowingly make any false or misleading statement of fact in order to obtain any deferral of fees under this Section. Section 12. That Section 26-651 of the Code of the City of Fort Collins is hereby amended to read follows: Sec. 26-651. - Conditions for furnishing service within growth management area. . . . (b) New utility service may be furnished to property which is outside of the City limits and within the Growth Management Area if the Utilities Executive Director determines that the provision of such service is consistent with the relevant utility master plan documents and is in the best interests of the City, the City's utilities and the relevant utility, and if the following conditions are met: (1) The utility concerned has surplus capacity over the immediate requirements for service within the City and the applicant has satisfied any raw water supply requirement assessed against property to be served with City water; . . . DRAFT FOR DISCUSSION PURPOSES ONLY - 11 - Section 13. That Section 26-653 of the Code of the City of Fort Collins is hereby amended to read as follows: Sec. 26-653. - Permit is revocable; agreement of user. (a) So long as a property served is outside the City, any permit for utility services issued under this Article is revocable and the utility concerned will supply service only to the extent that it has surplus capacity over the requirements for service within the City and only so long as the permittee is in compliance with and abides by the conditions of the permit, including but not limited to all requirements of this Code applicable to utility service. The use of City water under this Article does not constitute a relinquishment of any water or water rights by the City. The City reserves and retains full dominion and control over its water and water rights and their use. Upon revocation of a water service permit for water use outside the City and the permanent disconnection of water service, the City shall remit such raw water supply as has been previously surrendered to the City by the outside-City user. . . . Introduced, considered favorably on first reading, and ordered published this ____ day of __________, A.D. 2017, and to be presented for final passage on the ____ day of __________, A.D. 2017. __________________________________ Mayor ATTEST: _______________________________ City Clerk Passed and adopted on final reading on the ____ day of ____ day of __________, A.D. 2017. __________________________________ Mayor ATTEST: _______________________________ City Clerk 1 Changes to the Utilities Raw Water Requirements Donnie Dustin, P.E., Water Resources Manager Council Finance Committee July 11, 2017 HORSETOOTH RESERVOIR 2 Water Impact Fees PLANT INVESTMENT FEES (PIF) DISTRIBUTION WATER TREATMENT TAP FEES (Water Meters) WATER METERS RAW WATER REQUIREMENTS (RWR) Source of Supply (water rights), which includes Storage and Transmission CACHE LA WATER POUDRE RIVER SUPPLY HORSETOOTH RESERVOIR 3 This discussion focuses on Utilities water service area; continued discussions with other districts. Raw Water Requirements What are they? • Water rights or fee paid by new development • Amount based on use, type of development • GOAL: generate adequate funds and water rights to provide reliable water supply 4 5 Amount of Raw Water Required Amount of Raw Water Requirement (RWR) RWR Changes • Service area population +45,000 by 2065 • Water use less than expected (current RWR) • Single-family: 26% less • Multi-family: 39% less • 3/4-inch tap: little change • Larger taps: 18-25% less • Suggest RWR adjustments to reflect changes • Expected RWR ~7,700 acre-feet 6 Residential indoor use better correlated to number of bedrooms 7 Amount Cash-in-of Raw Lieu Water (CIL) Required Rate Future Water Supply Needs How much will it cost to increase firm yield for new development? $63.9M: Infrastructure (e.g., storage) + $25.5M: Future water rights (requires storage) + $40.5M: Value from existing portfolio $129.9M: Total cost to increase firm yield 8 Future supplies would not provide adequate yield without existing portfolio Hybrid Cost Approach • Proposed Cash-in-lieu rate: = $16,700 / AF Current CIL rate = $6,500 / AF 𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉 𝑜𝑜𝑜𝑜 𝐹𝐹𝑉𝑉𝐹𝐹𝑉𝑉𝐹𝐹𝑉𝑉 𝐼𝐼𝐼𝐼𝐼𝐼𝑉𝑉𝐼𝐼𝐹𝐹𝐼𝐼𝑉𝑉𝐼𝐼𝐹𝐹 𝐼𝐼𝐼𝐼𝐼𝐼𝐹𝐹𝑉𝑉𝑉𝑉𝐼𝐼𝑉𝑉𝐼𝐼 𝐹𝐹𝐹𝐹𝐹𝐹𝐼𝐼 𝑌𝑌𝐹𝐹𝑉𝑉𝑉𝑉𝐼𝐼 = $129.9𝑀𝑀 7,800 𝐴𝐴𝐹𝐹 Cash-in-lieu Rate 9 10 10 $4,300 $2,800 $9,000 $3,900 $0 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 $7,000 $8,000 $9,000 $10,000 Single family, 4br, 6,000 sq ft lot Multi-family, 100 units, 3.4 acres Cost per Unit or Tap ($) Fort Collins Utilities: Raw Water Requirement Costs for Typical Residential Developments Status Quo Hybrid Approach Cash-in-lieu (CIL) Rates: Status Quo CIL = $6,500/AF Proposed CIL = $16,700/AF 11 11 $5,900 $19,500 $15,100 $37,800 $0 $10,000 $20,000 $30,000 $40,000 Commercial Tap: 0.75" Commercial Tap: 1.0" Cost per Unit or Tap ($) Fort Collins Utilities: Raw Water Requirement Costs for Typical Commercial Developments Status Quo Hybrid Approach Cash-in-Lieu (CIL) Rates: Status Quo CIL = $6,500/AF Proposed Cost CIL = $16,700/AF $4,300 $9,000 $12,600 $13,500 $14,000 $14,180 $25,000 $0 $5,000 $10,000 $15,000 $20,000 $25,000 $30,000 Status Quo Hybrid Approach Loveland NWCWD Greeley ELCO FCLWD Cost, rounded to nearest $100 ($) Water Supply Costs for A Typical Single Family Home in Northern Colorado 12 12 $19,500 $31,700 $37,800 $62,500 $68,000 $103,100 $111,500 $0 $20,000 $40,000 $60,000 $80,000 $100,000 $120,000 Status Quo NWCWD Hybrid Approach FCLWD Greeley ELCO Loveland Cost, rounded to nearest $100 ($) Water Supply Costs for 1" Commercial Taps in Northern Colorado 13 13 14 Amount Cash of Focused Raw Water System Required Accepting Cash vs. Water Rights No longer allow dedication of water rights, except Colorado-Big Thompson (CBT) water 15 Focus on infrastructure first Can still acquire water rights Flexibility to pursue other options Storage increases supply with existing (and future) water rights Could include regional aspects Focus on best rights Feb. 14 Council Direction • Consider delayed implementation • Explain rate payer impacts from: • Delayed implementation • Not making these changes • Conduct additional public outreach • Include general public • Provide justification for contingencies • Orient new Councilmembers 16 Outreach • Presentations made to: • Stakeholders: Chamber of Commerce, Home Builders Association, 5 ditch companies, key accounts, individual shareholders and developers • 4 Boards: Water, Affordable Housing, Economic, Natural Resources • General public outreach (focus groups) – early July • Focus: water supply costs met via impact fees vs. rates 17 Outreach summary • Concern with increased housing costs • Explain “buy-in” component of CIL rate • Increased costs to current developments • No longer accepting water rights will • Devalue local shares • Penalize good planning • Affordable Housing Board exceptions • General support from other boards 18 Adjustments Due to Outreach • Recommend delayed implementation • Allow developers to finish projects at current costs • Allow planned water rights dedication (under certain conditions) • Development started and rights acquired before 2/14/2017 • Dedication must occur before January 1, 2019 19 Potential Revenue Loss • Loss from delayed implementation • 6-months: ~$1.7M loss • 1-year: ~$3.5M loss • $3.5M = 12% of 2016 operating revenues • ~$49M revenue loss if only change RWR • Revenue loss made up by future rate increases 20 Implementation Options • Implement all RWR and CIL changes on: • October 1, 2017 (immediate) • April 1, 2018 (6-month delay) • October 1, 2018 (1 year delay) • Staff recommends April 1, 2018 • Allows time to address developer concerns 21 Staff Recommendations 1. Adjust RWR schedules based on recent use • Residential based on # of bedrooms 2. Use “Hybrid” approach cash-in-lieu rate • CIL = $16,700/AF of RWR 3. Cash focused system (and credits) 4. Periodically adjust CIL, RWR 5. Implement all changes April 1, 2018 22 Next Steps • Early July: General public input groups • July 20: Water Board recommendation • August 15: City Council for adoption • Sep. 5 – second reading 23 Questions • What questions or feedback does the Council Finance Committee have regarding the proposed changes? • Does the Council Finance Committee support these changes and recommend bringing them to the full City Council for adoption? 24 25 COUNCIL FINANCE COMMITTEE AGENDA ITEM SUMMARY Staff: Tiana Smith Date: July 11, 2017 SUBJECT FOR DISCUSSION City Fees Master Plan EXECUTIVE SUMMARY (a brief paragraph or two that succinctly summarizes important points that are covered in more detail in the body of the AIS.) Since October 2016, staff has worked to coordinate the process for updating fees at City Council. Historically, fee updates have been presented to Council on an individual basis, leaving Council and the community at a disadvantage for understanding the holistic impact of fees across the city when making decisions to approve. Phase 1 of the Fee Project which includes capital expansion fees and electric capacity fees was approved by City Council in June of 2017 along with a commitment to create a working group of citizens, industry and staff to foster a better understanding of fees. The staff presentation recommends a master plan and timeline for the coordination of fees to be updated by City Council between 2017 and 2021, including the creation of a Fee Policy to be approved by City Council. GENERAL DIRECTION SOUGHT AND SPECIFIC QUESTIONS TO BE ANSWERED (Work session questions should be designed to gather direction from Council without requiring Councilmembers to make a decision.) • Does Council Finance agree on the recommended timeline for the Fee Master Plan? • Is there additional input or concerns to be addressed in any of the recommendations in the presentation? BACKGROUND/DISCUSSION From 2015-2016, staff in Finance, PDT and Utilities began updates on their fees to be presented to Council throughout 2016. In October of 2016, Council directed staff to merge the presentation of these individual fees to the community with the objective of creating a more comprehensive look at the impact of the fees to the shared stakeholders. As part of this effort, staff performed an inventory of all fees charged across the City. Timing of updates and code requirements all needed to be considered when recommending a coordinated fee process. Based on this inventory, staff broke the fee project into multiple phases: • Phase 1- Capital Expansion Fees, Transportation Capital Expansion Fees, Electric Capacity Fees • Phase 1a- Raw Water Requirements/Cash in Lieu Rate • Phase 2- Development Review Fees and Wet Utility Plant Investment Fees Phase 1 of fees was approved by City Council in June of 2016. Staff committed to creating a working group of citizens, staff and industry representatives that will work through a scope of deliverables. Phase 2 of fee updates will be in process while the fee working group begins its meetings. Staff plans to bring forward a recommendation from the fee working group along with fees from Phase 2 to Council for approval in March of 2018. The fee master plan being presented to Council Finance recommends a future fee timeline and next steps for consideration and feedback by Council Finance. ATTACHMENTS • Fee Master Plan presentation City Fees Master Plan 7/11/17 Council Finance Committee Fees Journey 2 Launched fee Updates: • Cap Exp Fees • Transp CEF • Electric PIFs • Raw Water Council direction to combine all fees Combined Discussion Continues to Stakeholders (Raw Water on Separate Timeline) Raw Water/CIL considered for adoption by Council Council adopts: • Cap Exp @ 75% • Transp Option B • Full Electric Capacity Fees Working Group Formed City Fees Master Plan- What’s in Scope 3 Action: Deliverable Timeline Identify all fees charged externally by the City Detailed inventory of fees across all departments Completed in 2016 Foster understanding of fees w/ stakeholders Creation of working group of stakeholders and City Staff In progress Make recommendation on future fee update Fee Update Process Early 2018 Objective: Develop a coordinated process for fee updates -Holistic understanding of Cost Impact for Community and Council City Fees Inventory What We Found 4 Inconsistent process for updating fees across service areas Difficult to understand the overall fee picture as they’re asked to make decisions on individual fee increases A more integrated approach across the City provides a broader lens for understanding the impact and total cost Historical Updates and Timing 5 Created Police Fire General Gov't Community Parks Neighborhood Parks 1986 Transportation Cap. Exp. 1986 Electric Capacity Fees 1972 Raw Water/Cash-in-Lieu 1986 Water Utility PIF 1972 Misc. Water Charges 1972 Sewer PIF 1986 Stormwater Utility PIF 1972 Wastewater Strength Surcharge 1972 Misc. Utility Charges 1986 Building Permit fees 1997 Development Review Fees 1997 Transportation Development Review Fees 1997 Development Review Fees 1996 Utilities PIFs Capitial Expansion Fees Last Updated Code Requirements 2017 Per Code every 3 years 2017 Per code, every two years 2001 Update in progress for 2017 No guidance in Code 2015 Per code, every two years 2016 No guidance in Code 2015 Per code, every two years 2015 Per code, every two years 2016 No guidance in Code 2014 No guidance in Code 2011 No guidance in Code 1997/2010 No guidance in Code 2006 No guidance in Code 2017 Per code, every 3-5 years Inflation? Annually No No No No No No No No No No Annually What’s Involved in Updates 6 Capital Expansion Fees Transportation Capital Expansion Fees Development Review Fees Wet Utilities Plant Investment Fees Electric Capacity Fees Raw Water/Cash-in-Lieu • Outside Consultant through RFP process • Data provided by City Staff • Findings verified by City Staff • Internal Update by City Staff with periodic verification through Consultant Process Relies on External Industry Experts, Comparison of Methodologies, Peer Cities and Coordination with City Staff Fees Master Plan Timing 7 -Reflects Master Fee Data Updates -Does not reflect annual inflation updates 2020 2021 Working Group Fee Policy/Process to Council Raw Water/CIL Capital Expansion Fees Trans. Cap Exp Fees Electric Capacity Fees 2021 Phase 1 Wet Utility PIFs Dev. Review Fees Electric Capacity Fees No Fee Updates Except Inflation Capital Expansion Fees Trans Cap Exp Fees Electric Capacity Fees Wet Utility PIFs Dev. Review Fees Raw Water/ CIL Phase 2 Fee Updates Fee Updates 2016 June 2017 July 2017 March 2018 2019 2020 2021 Working Group Scope  Understand why City has fees and how they’re used - Parks, General Gov’t, Fire, Police CEFs - Transportation Capital Expansion Fee - Utility PIFs (Water, Electric) & Raw Water - Development Review Fees - Connection to City Plan & Master Plans  Understand inputs & calculations - Review consultant studies - Inputs and calculations - How does the City assess asset values? - Cost of Capital Improvement Program - Census Data (Functional Population & EDUs) 8 Group Position Paper on Methodologies, Inputs, Calculations & Update Cadence for All Fees  Evaluate methodology & alternatives - Methodologies & how they work o Plan-based / Standard-based o Utility methodologies / Hybrid - Industry Best Practices - Legal constraints - Appropriate cadence for updates  Appropriate public outreach  Alternate revenue sources to fees Fees Journey- 2017- 2018 9 Fee Working Group completes deliverables Fee Updates Every 2-4 years Studies completed: Development Review Fees Wet Utility PIFs Fee Policy Created/Presented to Council Phase II Fee Update Adoption Position paper(s) presented to City Council ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! INTERSTATE 25 S SHIELDS ST S COLLEGE AVE S TAFT HILL RD E VINE DR S TIMBERLINE RD LAPORTE AVE E PROSPECT RD S LEMAY AVE E DOUGLAS RD W DRAKE RD STATE HIGHWAY 392 N OVERLAND TRL E MULBERRY ST E DRAKE RD S COUNTY ROAD 5 COUNTY ROAD 54G N US HIGHWAY 287 N SHIELDS ST W MULBERRY ST W PROSPECT RD S OVERLAND TRL E COUNTY ROAD 30 ZIEGLER RD W TRILBY RD E HORSETOOTH RD N COUNTY ROAD 23 W COUNTY ROAD 38E CARPENTER RD S COUNTY ROAD 23 E LINCOLN AVE N TAFT HILL RD E COUNTY ROAD 38 W HORSETOOTH RD TURNBERRY RD W ELIZABETH ST N LEMAY AVE TERRY LAKE RD S COUNTY ROAD 19 N COUNTY ROAD 5 S CENTENNIAL DR GREGORY RD GIDDINGS RD W LAUREL ST KECHTER RD S US HIGHWAY 287 E COUNTY ROAD 54 E COUNTY ROAD 52 / Fort Collins Area Water Districts 0 0.5 1 2 3 4 5 Miles Water Districts East Larimer County Water District Fort Collins Loveland Water District Fort Collins Utilities (Water) Sunset Water District West Fort Collins Water District ! ! City Limits GMA Major Streets Railroads Figure Updated: 9/23/2015 ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! !! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! ! INTERSTATE 25 S SHIELDS ST S COLLEGE AVE S TAFT HILL RD E VINE DR S TIMBERLINE RD LAPORTE AVE E PROSPECT RD S LEMAY AVE E DOUGLAS RD W DRAKE RD STATE HIGHWAY 392 N OVERLAND TRL E MULBERRY ST E DRAKE RD S COUNTY ROAD 5 COUNTY ROAD 54G N US HIGHWAY 287 N SHIELDS ST W MULBERRY ST W PROSPECT RD S OVERLAND TRL E COUNTY ROAD 30 ZIEGLER RD W TRILBY RD E HORSETOOTH RD N COUNTY ROAD 23 W COUNTY ROAD 38E CARPENTER RD S COUNTY ROAD 23 E LINCOLN AVE N TAFT HILL RD E COUNTY ROAD 38 W HORSETOOTH RD TURNBERRY RD W ELIZABETH ST N LEMAY AVE TERRY LAKE RD S COUNTY ROAD 19 N COUNTY ROAD 5 S CENTENNIAL DR GREGORY RD GIDDINGS RD W LAUREL ST KECHTER RD S US HIGHWAY 287 E COUNTY ROAD 54 E COUNTY ROAD 52 / Fort Collins Area Water Districts 012345 0.5 Miles Water Districts East Larimer County Water District Fort Collins Loveland Water District Fort Collins Utilities (Water) Sunset Water District West Fort Collins Water District !!City Limits GMA Major Streets Railroads Figure Updated: 9/23/2015 ATTACHMENT 1