A-2. Key Financial Strategy: Pavement Management CITY OF CHANHASSEN
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9 S Chanhassen is a Community for Life-Providing for Today and Planning for Tomorrow
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MEMORANDUM
TO: Mayor& City Council
FROM: Greg Sticha, Finance Director
DATE: September 25, 2017 O `'
SUBJ: KEY FINANCIAL STRATEGY: Pavement Management
Discussion of Funding Options for Street, Existing Trail and
Parking Lot Improvements
BACKGROUND
On a couple of occasions earlier this year, staff discussed with city council various street,
existing trail, and parking lot improvement needs going forward into the future. Tonight staff is
going to explore a multitude of options to maintain and fund local street, existing trail and
parking lot improvements improvement's in the city's revolving assessment construction fund.
ANALYSIS OF ASSESSMENT PRACTICE
One of the questions raised at our previous meeting surrounded our current assessment practices.
Therefore, staff will be reviewing our current assessment practice and the pros and cons of
making adjustments to our current practice:
In 1993 the city assessed Chanhassen Estates subdivision(project#93-10) for a street
reconstruction project in the amount of 40% of the street and storm sewer cost. This project
appears to be the first street reconstruction project the city completed and has set the precedent
for the current assessment practice. In 2001 the assessment practice was drafted and used for
the Pheasant Hills Street rehabilitation project. In 2007 the assessment practice was updated to
better identify deferment of assessments for hardship cases. In February 2010 the assessment
practice was updated again to give the City Council more flexibility on setting assessment
amounts and identifying how interest rates shall be set(practice attached).
The City of Chanhassen's Assessment Practice is intended to provide direction to city staff for
preparation of assessment rolls for public improvements to ensure fair and consistent treatment
of all properties within the city. The average street reconstruction project cost is about $8,300
per parcel. The average full-depth mill rehabilitation project is around $3,800 per parcel. Some
cities use front foot calculations for determining assessment amounts. For residual areas, the city
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
September 25, 2017
Page 2
distributes the assessments equally over each residential parcel that has access to the project area.
This has been an easier way to explain the assessments to property owners. The city has used lot
size for calculating assessments for more complicated project areas such as business parks or the
downtown. Assessing 40%of the benefiting street costs has always been used in these cases.
This method has seemed to work well since a small lot or business may be next to a larger
business or a business may not have direct access to the road being improved.
Other communities assess more than Chanhassen, and some communities do not assess anything
for street projects. The communities that do not assess have typically paid for street
improvements through the general levy and bonding or franchise fees. Staff has evaluated the
option of increasing the assessment amount to 50% of the benefiting street costs. The estimated
assessment for street reconstruction projects would be$10,300. The estimated assessment for a
full-depth mill rehabilitation project would be$4,750 per parcel. Assessments must be based on
a benefit to the property as required by MS 429.
The city has completed special benefit consultation reports by appraisers for past projects that
have shown the current assessment practice is justified. Raising the assessment amount to 50%
or more would potentially be greater than the benefit of the project and thus could be challenged.
In addition,raising the assessment percentage would be a harder sell to property owners and
would likely get a pushback on projects at the public hearings and assessment hearings.
If the city would eliminate the assessment practice and not assess, the levy would need to be
substantially increased to maintain a 70 OCI or a significant franchise fee would need to be
approved. Past property owners who have been assessed may not like the fact that new projects
are not assessed and ask for their assessment to be eliminated or the city pay them back.
Staff feels the current assessment practice has served the city well for over 17 years. Any
significant changes to the current assessment practice may be hard for the community to accept.
OPTION ASSUMPTIONS
Based on the information and recommendations presented by Mr. Oehme, staff will frame the
various funding options by either keeping the current assessment practice at a level of 40% or
eliminating the assessing practice all together. Staff is also assuming that based on previous
discussions with city council they would like to maintain the current OCI of around 70 of our
streets, existing trails, and parking lots. In order to maintain that OCI, funding would need to be
between $3.1 M-$3.4M starting in 2022 based on previous discussions. Therefore, staff is going
to use a funding level of$3.2M starting in 2022. Attached you will find the estimated impact to
OCI at$3.2M. We also included a chart of the impact to OCI at current funding levels (average
about$1.5M/year).
Mayor & City Council
Pavement Management Funding Options
September 25, 2017
Page 3
ELIMINATING 40% ASSESSMENT PRACTICE (Assumed elimination in 2022)
Option #1 (Using Levy only to fund street, existing trail, and parking lot improvements):
By eliminating the 40% assessment repayment and by using only a levy to pay for the
improvements, starting in 2022 the levy would need to increase by approximately $2.8M. The
impact on the average home in Chanhassen would be an increase to the city portion of their
property taxes in the amount of $280-$300.
Option #2 (Maintaining the current $380,000 levy and using a franchise fee to make up the
difference)
By eliminating the 40% assessment repayment and using only the current levy to pay for the
improvements along with the implementation of a franchise fee in 2020, a fixed franchise fee for
residential users would need to be $6.00 (instead of the previously discussed $3.25) and some
additional adjustments would need to be made to commercial users (see attached schedule).
MAINTAINING 40% ASSESSMENT PRACTICE
Option #3 (Using levy & repaid assessments to fund street, existing trail and parking lot
improvements):
If the current practice of assessing 40% of annual street reconstruction/improvement projects
continues and a levy is used to pay for these projects, a levy increase of approximately $1.9M
would be needed. The impact on the average home in Chanhassen would be an increase to the
city portion of their property taxes of $170-$190.
Option #4 (Maintaining the current $380,000 levy and using a franchise fee to make up the
difference)
If the current practice of assessing 40% of annual street reconstruction/improvement projects
continues and a fixed franchise fee is used to pay for these projects starting in 2020, the fixed
franchise fee would need to be $3.25 for residential users (see attached schedule).
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.
Mayor& City Council
Pavement Management Funding Options
September 25, 2017
Page 4
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
potential other public safety needs in the city's General Fund and not to use that levy for the
revolving assessment street reconstruction fund.
STAFF RECOMMENDATION
With all of the information noted above, and the intention of keeping street condition levels near
current condition levels, along with the need for the Library Bond levy for purposes other than
street, existing trail, and parking lot improvements, staff is recommending the implementation of
a fixed franchise fee to fund local street improvements into the future of$3.25 for residential
users. The use of a franchise fee seems to be the most equitable to varied users of the local
streets in the city. While the use of a levy is also an option, staff feels that an unfair amount of
the burden becomes shifted on residential property owners as compared to other property types.
ATTACHMENTS
1. Revolving Assessment Street Reconstruction Projection with option#1.
2. Revolving Assessment Street Reconstruction Projection with option#2.
3. Revolving Assessment Street Reconstruction Projection with option#3.
4. Revolving Assessment Street Reconstruction Projection with option#4.
5. Chart Showing Local Street Mileage per Decade.
6. OCI chart at $3.2M/year funding.
7. OCI chart at $1.5M/year funding(current funding level).
8. Ehlers' analysis of fixed franchise fee at$3.25 for residential.
9. Ehlers analysis of fixed rate needing$2.25M starting in 2020.
10. Current Assessment Practice.
\gregs\franchise fee discussion 2017\street funding options 9-11-17.docx
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CITY OF CHANHASSEN
y �
ASSESSMENT PRACTICE
y H p S S Updated November, 2014
This Assessment Practice is intended to provide general direction to City Staff in preparation of assessment rolls
to ensure fair and consistent treatment of all properties within the City of Chanhassen. This practice may not
apply in all circumstances at which time the Council will direct staff to determine an alternate assessment
methodology. All benefiting properties that have access or potential future access to the street proposed to be
Reconstructed or Rehabilitated shall be included in the assessment roll. Assessments must be equally
distributed between housing types. Commercial properties will typically be assessed using an area charge or in
some circumstances front footage.
NEW CONSTRUCTION: 100%assessed to benefitting properties
Assessable Costs Include:
• Construction of a new street—Typically not a City project.
• Installation of water main, storm sewer and sanitary sewer systems where it did not previously exist.
RECONSTRUCTION: 40%assessed to all benefitting properties
Assessable Costs Include:
• Reconstruction of an existing street.
• Installation or repair of concrete curb and gutter associated with a street reconstruction project.
Notes:
• If a residential property benefits from a collector or commercial street reconstruction project,the
assessment amount for the residential property shall be based on a 31-foot wide street.
• Replacement or repair of an existing water main, storm sewer and sanitary sewer will not be assessed to
the benefitting properties. The City will pay 100%of these improvement costs out of the associated
enterprise fund.
REHABILITATION: 40%assessed to all benefitting properties
Assessable Costs Include:
• Edge or full-depth mill and overlay, cracksealing and full-depth repair of problem areas within the street
rehabilitation project area, installation or repair of curb and gutter.
• Replacement or repair of existing water main, storm sewer and sanitary sewer will not be assessed to the
benefitting properties. The City will pay 100%of these improvement costs out of the associated
enterprise fund.
Notes:
• If a residential property benefits from a collector or commercial street rehabilitation project,the
assessment amount for the residential property shall be based on a 31-foot wide street.
ASSESSMENT PAYMENT OPTIONS
• Term for Reconstruction projects shall be 10 years.
• Term for Rehabilitation projects shall be 8 years.
• The interest rate of the assessment projects shall be the Wall Street Journal Prime Rate (at the date of the
assessment hearing) plus 2%.
REGULAR MAINTENANCE: Properties are not assessed
• Projects Include: Pothole filling, Patching, Cracksealing, Sealcoating
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