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A-4. Key Financial Strategy: Pavement Management Program ' Y w CITY OF CIIANHASSEN rVg . S S- ° Chanhassen isa Community for Life-Providing for Today and Planning for Tomorrow A MEMORANDUM TO: Mayor& City Council FROM: Greg Sticha, Finance Director DATE: October 9, 2017 1AC4 • 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 provide additional information on a couple of items. At the last meeting city council requested additional information about the following: 1. What pavement conditions are other surrounding communities maintaining their local streets and what do the various levels mean. 2. What happens to the options if the city eliminates the practice of assessing for streets immediately rather than in 2021. 3. What happens to the options if the franchise fee is assumed to begin full collection in 2019 rather than 2020. 4. What is the impact on all of the franchise fee options to non-profit(property tax exempt) properties such as churches, schools and other municipal buildings. Additionally, staff has included an example calendar of how the education and informative phases of the Franchise Fee process would look if started in the fall of 2017. Pavement Conditions of Surrounding Communities and the Meaning of the Levels Staff has checked with some surrounding communities on what pavement management goals they have for their communities. The City of Minnetonka's pavement management network goal is 80; their current pavement network is rated at 83. The City of Eden Prairie's pavement PH 952.227.1100• www.ci.chanhassen.nln.us• FX 952.227.1110 7700 MARKET BOULEVARD • PO BOX 147 • CHANHASSEN • MINNESOTA 55317 Mayor& City Council Pavement Management Funding Options October 9, 2017 Page 2 management network is currently rated at 79. The City of Chaska does not have a pavement management program. Rather than evaluate using a pavement index, Chaska Public Works and Engineering work together in determining how streets are programmed for maintenance and reconstruction. Chaska's policy has been to evaluate streets based on a 5 — 10— 15 —25 year cycle for maintenance needs. Public Works determines the maintenance measures based on age/lifecycle/and pavement condition so that streets can be programmed accordingly. Annual adjustments are made to a list of streets as some degrade more quickly and allows flexibility to adjust with maintenance. The City of Elk River maintains a pavement management network goal above 70. Pavement management ratings are typically scored from 100 to 0 with 100 being a new street and 0 being a gravel street. Street ratings can typically be put into 5 general categories as follows: Classification Rating Description Excellent 90-100 New Street Exhibits zero to minimal quantities of measured pavement distresses Excellent 80-90 and low distress severities. Tends to be recently paved and does not require a project to improve condition. Exhibits minimal quantities of measured distresses and low to Good 60-80 moderate distress severities. Requires a pavement preservation project to maintain or improve the condition and delay a costlier project. Exhibits moderate to large quantities of measured distresses and a range of distress severities. Tends to be beyond the scope of a Fair 60-45 preservation project and requires a pavement rehabilitation project to improve the condition when the rating values are at the lower end of this range. Exhibits large quantities of measured distresses and high destress Poor 45-0 severities, in particular, structural failures. Beyond the scope of the preservation project and requires a major rehabilitation or pavement reconstruction project to improve the condition. Mayor& City Council Pavement Management Funding Options October 9, 2017 Page 3 These classifications can be shown visually in the following graphic: Classification of Pavement Condition 7G?„.r 1 _ S _ VERY GOOD (Pc1=95) GOOD(PCI=70) FAIR (PCI=Bo) 7 y r kip, . 1• ,'t..f I I FY ;, L PK-fall...**5011141W4066k.,,,,, ,...,..-"" ., •t,, -''':4 ',‘"1 + N. 4.0440114 if. vc",,, •..-. A' 5...- ' f ; POOR(PCI=45) VERY POOR(PC1=20) GRAVEL(Pci=o) As streets become more deteriorated, street repairs become more expensive. Mayor& City Council Pavement Management Funding Options October 9, 2017 Page 4 Maintenance Strategies for Life Cycle Extension 100 - lacaized Maintenance Seal Coating=S1.40/sy and go aboat 0 ^ (W-100) 00 Mill and Overlays=$13.00/sy 0 Pre4a2'on IAaarunance 0 ani?.moray 40t3>-55; ‘tt I Reclaimation=$21.00/sy Qt 20 _ — _. ___._ __. __. _ _ — -- — — -- -{Reconstruction=$108Isy 11 Resor sr fiction 0 -- — — Pavement Age (Years) r Maintenance Strategies R- le Mantenance Only �-Sealcoa:and Over ay Funding Options of Eliminating Assessment Practice Immediately and Collecting Franchise Fee in 2019 Option#1A This option is very similar to Option#1 from our discussion at our last meeting. It uses tax levy to pay for all improvements as is the case in option#1,but it eliminates the assessment practice immediately rather than waiting until 2022. Doing this requires an increase in the levy by an additional $450,000 in 2022,bringing the total increase in the levy to $3.25M and resulting in an approximate increase on the average home to about$310-$330/year. Option #2A This option is very similar to Option#2 from our discussion at our last meeting. It uses a Franchise Fee on gas and electric utility customers to pay for all street reconstruction improvements,but it eliminates the assessment practice immediately rather than waiting until 2022. This option also changes the assumption of not collecting the first year of Franchise Fee Revenue from 2020 up to 2019, thus giving an extra year of collection which has a significant impact on keeping the initial estimated fee to be charged closer to Option#2. Thus, Option#2A Mayor& City Council Pavement Management Funding Options October 9, 2017 Page 5 would require a monthly franchise fee on gas and electric residential customers of$5.00/month rather than the$4.80/month. Impact of Franchise Fee on Tax Exempt Properties (Non-Profits, Schools, Churches and Municipalities) One additional question the city council had was what would be the impact of a franchise fee on churches, schools and other governmental units (tax-exempt properties). Staff has included an attachment that breaks down estimates of impacts on each classification in total based on each of the funding levels discussed to this point. The estimates include a range as it is difficult to predict the actual customer classifications for each utility account. The utility companies are typically not willing to give exact customer information that could make the estimate at least slightly more precise. One additional note, if the assessment practice is eliminated it is important to mention that while we currently assess for street reconstructions and overlay improvements on churches and schools, if we discontinued that practice and used a levy to pay for the improvements rather than a franchise fee, these property classifications would not be contributing any funding for our local street improvement program, as these properties are tax exempt. An example of a recent assessment to a school was to Chanhassen Elementary as part of the 2008 project for$62,000. 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. 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#1A. 2. Revolving Assessment Street Reconstruction Projection with Option#2A. 3. Ehlers' analysis on rates at various funding levels and impact on Non-Profit/Tax Exempt properties. 4. 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O a 0 < = CU \\ (1') V) LID a-I 00 fo O- / a-, L c-I M c-c-1' fYl N O0 C X ora- L CO a� cc = > cn CO / al C (13 si— tel^ -1-„,.: ti ~ O o i i L J L LU ~ Cr) a, O O a) 3 a� U o c a ro E „ O E 5c -o a) a = ° o m O. 0 ra A QT lY0CITY Of CHANHASSEN Chanhassen isa Community for Life-Providing for Today and Planning for Tomorrow # H AS MEMORANDUM TO: Mayor& City Council FROM: Greg Sticha, Finance Director DATE: September 25, 2017 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$3.1M-$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. 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N00 () 110w I °C in i N; N .c in- in- CN c 6 4 000 O h O d I of o 0 a) N in L 13 W I CO H- ..� W - C6 -0 (I) — W U To N CZE Q ` 7. _ '0Ni _ 2fo {/} I..L w v `o E U E co a, 0 v u = u o Cll � _ - vtbo (0 L 0 L7 v u a)cc cn cn Cll C13 (!) (I) *10 \ Y o,n CITY OF CHANHASSEN eo, _' ASSESSMENT PRACTICE H n sS 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 g:\eng\forms\assessments\assessment practice 111814.doc