A-4. Key Financial Strategy: Pavement Management z y A - `+
CITY OF ClIANHASSEN
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Chanhassen isa Community for Life-Providing for Today and Planning for Tomorrow
NH AS
MEMORANDUM
TO: Mayor& City Council
FROM: Greg Sticha, Finance Director
DATE: August 28, 2017
SUBJ: KEY FINANCIAL STRATEGY: Pavement Management
Discussion of Funding Options for Street, Existing Trail and
Parking Lot Improvements
BACKGROUND
Earlier this year staff discussed with city council various street, existing trail, and parking lot
improvement needs going forward into the future. Based on those results, it is apparent that
additional funding will be needed in the near future to help fund the improvements or a lower
Overall Conditional Index (OCI) will need to be considered. Listed below are three funding
scenarios, all of which include the assumption of maintaining the current policy of assessing at
40%to the properties of each project area,the assumption of a 3%increase in construction costs
per year, and maintaining the current scheduled street projects in the 2017-2021 CIP.
SCENARIO 1 —Levy Paid: Funding at$3.4M/Year starting in 2022 (Levy increase of
$1.7M)
This scenario assumes that starting in 2022 we spend approximately$3.4M per year in streets,
existing trails, and parking lot improvements. The result of funding at this level is estimated to
maintain an OCI near or slightly below the current and historical OCI's. This scenario would
fund $100,000 in existing trail and parking lot improvements per year. The scenario would
require increasing the levy for the revolving assessment construction fund by$1,700,000 starting
in 2022. It would also require the current Revolving Construction Levy($380,000) and the
elimination of the Library Bonds Levy($465,000) in 2022 to be used for funding this program.
SCENARIO 2—Fixed Franchise Fee of$4.25 (residential): Funding at$3.4M/Year
starting in 2022 and implementing a Fixed/Flat Franchise Fee in late 2019. The current
levy of$380,000 being used for streets will be left in place but the Library Debt Levy could
be used for another need.
This scenario assumes that starting in 2022 we spend approximately$3.4M per year in streets,
existing trails, and parking lot improvements. The result of funding at this level is estimated an
PH 952.227.1100• www.ci.chanhassen.mn.us• FX 952.227.1110
7700 MARKET BOULEVARD • PO BOX 147 • CHANHASSEN • MINNESOTA 55317
Mayor& City Council
Pavement Management Funding Options
August 28, 2017
Page 2
OCI of 73.65 after twenty years. This scenario would fund $100,000 in existing trail and parking
lot improvements per year; however, it would eliminate the need to capture the Library Bond
Levy in 2022 ($450,000/year) into the revolving assessment construction fund.
In order to achieve the funding needed at this level, while keeping only the current levy in place
in the revolving assessment street construction fund, the city would need to implement a
flat/fixed-based franchise fee on gas and electric bills of approximately$4.25 for residential gas
and electric customers (tiered proportionally for other users).
SCENARIO 3—Fixed Franchise Fee of$3.25 (residential): Funding at$2.8M/Year
starting in 2022 and implementing a Fixed/Flat Franchise Fee in late 2019. The current
levy of$380,000 being used for streets will be left in place but the Library Debt Levy could
be used for another need.
This scenario lowers the fixed franchise fee to $3.25 on residential gas and electric bills for their
customers. By lowering the fee by the $1.00/month for residential users it would reduce total
revenues generated by approximately$225,000/year or$1,425,000. That reduced funding would
lower the amount of construction dollars available to be spent on projects to $3.15M/year rather
than $3.4M/year, which would then result in a lower OCI at the end of 20 years of 71.21. This
scenario would fund $100,000 in existing trail and parking lot improvements per year.
PARK& PLAYGROUND EQUIPMENT REPLACEMENT
One additional infrastructure/asset consideration is our aging existing Park and Playground
Equipment. The majority of these assets were put in place around the same time the streets were
constructed in the 1980s and 1990s, and many of those assets are nearing the end of their useful
lives. A separate fund, funding source, and schedule should be considered to plan for these
upgrades or replacements.
In addition,the Capital Equipment replacement fund has not had an increase in its levy since its
inception in 2005. The reserves that were built in that fund in the early 2000s are now being
used to supplement current spending that is exceeding the $800,000/year levy. Current reserves
in the fund are approximately$1.6M and the next five-year CIP has a number of significant
capital needs that have been delayed as long as possible. It is estimated that by the end of 2021
reserves in the capital equipment replacement fund could be less than one year's worth of levy
dollars ($800,000) and with equipment replacement costs continuing to rise,there will be a need
for an increase to the capital equipment levy.
With the knowledge of the need for funding dollars for each of these capital needs, staff believes
it is important to strategically plan to use the reduced Library Bond Debt Levy($465,000) for the
capital needs of park facilities,park playground replacements and city equipment needs, and not
to use that levy for the revolving assessment street reconstruction fund.
Mayor& City Council
Pavement Management Funding Options
August 28, 2017
Page 3
STAFF RECOMMENDATION
With all of the information noted above, and with the intention of keeping street condition levels
near current condition levels, staff is recommending the implementation of a franchise fee to
fund local street improvements into the future. The use of a franchise fee seems to be the most
equitable to varied users of the local streets in the city. It also allows for the maintaining of the
reduced Library Bond Levy for other capital items that need funding in the near future. Staff has
attached a sample calendar for implementing a franchise fee and is looking for direction from the
city council to proceed with presenting a franchise fee to the public later this fall.
ATTACHMENTS
1. Revolving Assessment Street Reconstruction Projection with Scenario#1.
2. Revolving Assessment Street Reconstruction Projection with Scenario#2.
3. Revolving Assessment Street Reconstruction Projection with Scenario#3.
4. Chart Showing Local Street Mileage per Decade.
5. OCI chart at $3.4M/year funding.
6. OCI chart at $3.15M/year funding.
7. Ehlers' analysis of fixed rate at $4.25 for residential and $3.25 for residential.
8. Sample calendar for implementation of Franchise Fee.
f:\gregs\franchise fee discussion 2017\street funding options 8-28-17.docx
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Original Analysis
Sample Fee Revenue — Scenario A ( Fixed Tiers)
Target: $1,750,000 Local Street Improvement Funding
Gas and Electric
Sample Revenue Analysis
Monthly Estimated Annual
% of
Customer Classification Fixed Annual Fixed
Revenue
Charge Revenue Charge
Residential $4.25 $935,187.00 53.6% $51.00
Small Commercial $6.75 $89,100.00 5.1% $81.00
Medium Commercial $20.15 $114,855.00 6.6% $241.80
Large Commercial $175.75 $588,411.00 33.7% $2,109.00
Small Dual Fuel $95.10 $18,259.20 1.0% $1,141.20
Total: $1,745,812.20 100%
„sr, EHLERS
LEADERS IN PUBLIC FINANCE
,-.rte_
August update
Sample Fee Revenue — Modified Scenario A
Gas and Electric
Sample Revenue Analysis
Monthly Estimated Annual
/o of
Customer Classification Fixed Annual Fixed
Revenue
Charge Revenue Charge
Residential $3.25 $715,143.00 46.9% $39.00
Small Commercial $6.75 $89,100.00 5.8% $81.00
Medium Commercial $20.15 $114,855.00 7.5% $241.80
Large Commercial $175.75 $588,411.00 38.6% $2,109.00
Small Dual Fuel $95.10 $18,259.20 1.2% $1,141.20
Total : $1,525,768.20 100%
EHLERS
LEADERS IN PUBLIC FINANCE
SCHEDULE OF EVENTS
THE CITY OF CHANHASSEN
CARVER AND HENNEPIN COUNTIES,MINNESOTA
FOR THE ESTABLISHMENT OF A FRANCHISE FEE FOR
THE CITY STREET IMPROVEMENT PROGRAM
June 12, 2017 City Council work session to review street conditions and discuss future funding.
August 28, 2017 City Council work session on Franchise Fee structure and implementation.
September—
November,2017 City Franchise Fee Circular posted online and include copy within City outgoing
utility bills.
City staff begin preparation of amended Franchise Agreements for negotiation with
gas and electric utility providers.
October [17], 2017 City holds Open House#1 to discuss Franchise Fee implementation.
November [9],2017 City holds Open House#2 to discuss Franchise Fee implementation.
November 13, 2017 City Council calls for public hearing on the proposed Franchise Fee for the City
Street Improvement Program.
November 30, 2017 Date of publication of public hearing notice. [Chanhassen Villager publication
deadline, Thursday, November 23, 2017, at 12:00 P.M. —submit notice and
instructions to newspaper on or before the date via email at legal@swpub.com.]
December 11, 2017 City Council holds public hearing on Franchise Fee for the City Street Improvement
Program.
City Council considers Franchise Fee Ordinance and amended Franchise
Agreements for implementation of new Franchise Fee in 2018.
December 15, 2017 New ordinance furnished to local gas and electric utility providers.
January 15,2018 Regulated gas and electric utility providers furnish 60-day notice to MN Public
Utilities Commission of intent to change fees.
March 16, 2018 Franchise Fee included in new gas and electric utility billing.
July 2018 Second quarter fees remitted from gas and utility providers for City Street
Improvement Program
11, EHLERS
!FADERS IN PIM IC FINANCE