C Utility Rate Study
CITY OF
CHANHASSEN
7700 Market Boulevard
PO Box 147
Chanhassen, MN 55317
Administration
Phone 952.227.1100
Fax 952.227.1110
Building Inspections
Phone 952.227.1180
Fax 952.227.1190
Engineering
Phone 952.227.1160
Fax 952.227.1170
Finance
Phone 952.227.1140
Fax 952.227.1110
Park & Recreation
Phone 952.227.1120
Fax 952.227.1110
Recreation Center
2310 Coulter Boulevard
Phone 952.227.1400
Fax 952.227.1404
Planning &
Natural Resources
Phone 952.227.1130
Fax 952.227.1110
Public Works
1591 Park Road
Phone 952.227.1300
Fax 952.227.1310
Senior Center
Phone 952.227.1125
Fax 952.227.1110
Web Site
www.ci.chanhassen.mn.us
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-
MEMORANDUM
TO:
Mayor and City Council
~0.
FROM:
Greg Sticha, Finance Director
DA TE:
November 9, 2005
SUBJ:
Utility Rate Study
BACKGROUND
We have asked our financial advisers Ehlers and Associates to study our current
utility fees and future projects to determine if the current fees and hook-up
charges being used are appropriate for planned expansion, reconstruction and
maintenance of our current water, sanitary sewer, and storm water systems.
Jessica Cook from Ehlers and Associates will be presenting the results of their
study at Monday night's work session. In addition, staff is including a
spreadsheet analysis of the current rate structure and the effect that the proposed
rate increases would have on an average residence in Chanhassen.
Staff is also recommending an inflationary increase in the water and sewer
connection fee of 3% for 2006.
RECOMMENDA TION
Staff recommends that council provide feedback on the proposed rate increases
based on the utility study performed by Ehlers. Staff would like to come back to
Council in December with rate increase ordinances to become effective
January 1,2006.
ATTACHMENT
1. Spreadsheet showing effect of proposed rate increases.
2. Executive Summary of Water & Sewer rates.
3. Executive Summary of Storm Water rates.
The City of Chanhassen · A growing community with clean lakes, quality schools, a charming downtown, thriving businesses, winding trails, and beautiful parks. A great place to live, work, and play.
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.
EHLERS
& ASSOCIATES INC
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To: Honorable Mayor and Council members
From: Mark Ruff and Jessica Cook
Subject: Updated Water and Sewer Rate Study
Date: November 8, 2005
The City has requested that Ehlers & Associates update the water and sewer rate study as
part of planning for the City's new water treatment system and capital improvement plan.
The 2005 update incorporates the City engineer's estimate of future capital improvements
for the utility systems through 2020. In addition, we have incorporated the bid price for
the first water treatment plant and the final debt service on the 2005 water revenue bonds.
Below is a chart that summarizes the significant assumptions and changes in rates that
will be necessary to pay for the planned water treatment system and other capital
improvements.
Water Utility Sanitary Sewer Utility
Growth Residential - 300 new units per year Same growth assumptions as water
through 2018; 50 units per year fund.
thereafter
Commercial - 4 new customers per
year through 2011,2 new customers
per year 2012-2013, and none
thereafter.
Water Treatment plants are anticipated to Not Applicable
Treatment be completed in 2006 and 2012.
Plant Estimated costs:
Plant! - $11,100,000
Plant II - $11,000,000 plus
$760,000 for land. The estimates
are in today's dollars, and have
been inflated 4% annually in the
rate study.
t
3060 Centre Pointe Drive
Roseville, MN 55113-1105
(651) 697-8546 Fax: (651) 697-8555
jcook@ehlers-inc.com
http://www.ehlers-inc.com
Water Utility Sanitary Sewer Utility
Other Capital Averages $965,000 per year for Averages $350,000 per year in
Improvements water trunk lines, wells, water today's dollars.
towers, new and replaced water Includes $700,000 for public works
main, etc. facility in 2008.
Costs are inflated 4% annually Costs are inflated 4% annually
Allocation of Both treatment plants will serve Capital improvements needed to
Capital existing and future users. The serve new development, including
Expenses capital cost of each plant is split: an expanded public works facility,
Between Plant I - 65% hook-up fees are paid by hook-up fees.
Current and 35% user charges Replacement and maintenance of the
Future Users Plant II - 45% hook-up fees existing system is paid by user
55% user charges charges.
The other capital improvements are
paid by hook-up fees if they are
needed to expand the system to
serve new development.
Operating Expenses increase 33% in 2007 to City expenses increase 3% annually.
Expenses operate the new treatment plant. MCES Fees increase 5% annually,
and constitute almost 75% of total
sewer operating costs.
Fund Balances The trunk fund should have a zero The trunk fund should have a zero
fund balance after the city is 100% fund balance after the city is 100%
built-out and the debt is paid off. built-out and the debt is paid off.
The minimum recommended The minimum recommended
operating fund is $2,000,000. operating fund balance is
Sporadic capital improvements may $2,000,000.
reduce the fund balance below $2
million to be replenished in future
years.
t
3060 Centre Pointe Drive
Roseville, MN 55113-1105
(651) 697-8546 Fax: (651) 697-8555
jcook@ehlers-inc.com
http://www.ehlers-inc.com
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Water Utility Sanitary Sewer Utility
Year % Increase A VI!. Bill Year % Increase A VI!. Bill
User Rates and 2005 5.5% $13.66 2005 5.0% $17.46
Monthly Bill 2006 7.0% $14.61 2006 8.0% $18.85
2007 8.0% $15.78 2007 5.5% $19.89
(for an average 2008 5.0% $16.57 2008 5.0% $20.88
family that uses 2009 5.0% $17.40 2009 5.0% $21.93
9,000 gallons per
month) 2010 5.0% $18.27 2010 5.0% $23.02
2011 5.0% $19.19 2011 5.0% $24.17
2012 10.0% $21.1 0 2012 5.0% $25.38
2013 5.0% $22.16 2013 5.0% $26.65
The sewer fund has been operating at
a loss. The proposed 2006 increase
will get operations "in the black."
Thereafter, rate increases follow the
projected MCES increase.
Hook-up Fees 38% increase in hook-up fee in 8% increase in 2006.
2006. Annual increases 5% No increase 2007-2011
thereafter.
4% annual decrease 2012 - 2020
Utility customers typically regard their fee increases for water and sewer in total. The
attached Exhibit A shows the projected combined increase in utility fees needed to
maintain minimum cash balances. Exhibit B breaks down the proposed 2006 increase by
operating and capital costs. Note that the biggest portion of the increase is attributable to
the Met Council's MCES fee, which is out of the City's control.
Hook-up fees are paid at the time a builder or homeowner pulls a building permit. It is
our experience that, out of necessity, most cities do increase hook-up fees substantially
when they undertake a new water treatment plant. Attached is a chart (Exhibit C) that
shows Chanhassen's water and sanitary sewer hook-up fees as compared to other
developing cities.
t
3060 Centre Pointe Drive
RoseviJIe, MN 55113-1105
(651) 697-8546 Fax: (651) 697-8555
jcook@ehlers-inc.com
http://www.ehlers-inc.com
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1,575
Exhibit C
2,812
494
3,874
326
2,955
none
4,413
none
4,077
5,652
none
none
559 2,708 765 447 4,478
to to
5,077
1,158
1,607 3,580 none none 5,187
1,619
(combined with
area charges)
o
2,159
MUSA Exoansion Area
1,611
Credit River District
1,005
MUSA Expansion Area
6,819
Credit River District
5,746
MUSA Exoansion Area
1,430
Credit River District
963
$620 - $820
Includes connection fees
$668 - $2,050 $634-$1380
1,922
to
4,250
3,526
6,179
none
none
1425
3,875
1,283
1,167
.
EHLERS
& ASSOCIATES INC
o
:IE
w
:E
To: Honorable Mayor and Councilmembers
From: Mark Ruff and Jessica Cook
Subject: Storm Water Rate Study
Date: November 8, 2005
The City has requested that Ehlers & Associates undertake a storm water rate study. The
study accomplishes the following goals:
I. Summarizes the capital improvement plans for the system through 2020.
scenanos.
2. Establishes target levels for cash balances in the water fund.
3. Makes recommendations for storm water utility rates and development fees to
ensure adequate revenue to pay for constructing, improving, and maintaining the
storm water system, including the surface water management plan.
4. Compares Chanhassen's fee structures with other developing cities.
Backeround
There are three components to the City's storm water system and fee structure:
The storm water utility fee is a quarterly fee intended to pay for the maintenance of the
storm water system once it has been constructed. The fee has not been increased for
several years.
The water quality fee and water quantity fees are area charge assessed against
developable acreage at the time the land is platted. These fees can be thought of as the
"ponding" and "piping" fees. The water quality fee ("ponding") is intended to pay for
land and installation costs for storm water ponding. If a developer ponds on-site, he is
given a credit equal to 50% of the fee. The water quantity fee is intended to pay for the
storm water piping and outlets. Developers receive a credit if they already have an outlet
structure on the property. Both water quality and quantity fee have been increased based
on the construction price index, and are calculated based on the run-off generated by the
development use.
t
3060 Centre Pointe Drive
Roseville, MN 55113-1105
(651) 697-8546 Fax: (651) 697-8555
jcook@ehlers-inc.com
http://www.ehlers-inc.com
Assumptions
Below is a chart that summarizes the significant assumptions used in the study.
Growth Residential- 300 new connections per year through 2018; 50 units per
year thereafter
Commercial- 4 new connections per year through 2011,2 new
connections 2012-2013, and none thereafter.
Same growth assumptions as water and sewer study.
Capital The study used the City's capital improvement plan for 2006-2010,
Improvements including $200,000 for the public facility expansion in 2008 and $700,000
for Lyman Boulevard improvements in 2009.
Beginning in 2011, improvements average $740,000 per year (in today's
dollars) for SWMP implementation, land acquisition, and street
improvement project.
Costs are inflated 5% annually, including land acquisition.
Operating Expenses increase 3% annually.
Expenses
Cash Balances The purpose of the cash balance is to allow the City to fund improvements
on a "pay-as-you-go" basis, reserving the use of debt for major
improvements. The current fund balance is approximately $3.2 million.
The minimum recommended cash balance is $2,000,000. Sporadic capital
improvements may reduce the fund balance below $2 million to be
replenished in future years.
Discussion
There are two factors putting financial pressure on the surface water utility. First, the
City faces new and increasing state requirements for the treatment of storm water, which
translate into higher operating and capital costs. Second, the cost of land needed for
ponding is increasing at a rate far faster than the rate of inflation. The study shows a need
for the following fee increases to pay for anticipated costs in the surface water
management fund. In determining how the these three fees should be increased, we
considered the following criteria:
1. The City ofChanhassen's fees should be comparable with other communities
facing the same cost pressures.
2. The water quality fee should be sufficient to pay for anticipated land costs.
3. The water quantity fee should be sufficient to pay for piping costs and increase
along with increases in construction costs.
4. Utility fees should pay for operations and maintenance of the system, but not for
new infrastructure necessitated by new development. 1.
I
3060 Centre Pointe Drive
Roseville, MN 55113-1105
(651) 697-8546 Fax: (651) 697-8555
jcook@ehlers-inc.com
http://www.ehlers-inc.com
Findines
Attached as Exhibit A is a chart that shows the projected rate increases. Keep in mind
that most developers only experience half of the rate increase for the water quality fee
because of the credit for on-site ponding. Therefore, the recommended 50% rate increase
for 2006 is experienced as a 25% rate increase once the credit is applied.
A survey of surface water utility fees in 2005 indicates that the quarterly fees range from
$3.00 in Eden Prairie to $21.80 in Golden Valley, and the median quarterly fee is $9.26.
Furthermore, the median fee has increased 21 % since 2003. The projected 2006 increase
for Chanhassen's stormwater utility would bring the fee up to $7.50 per quarter.
The attached Exhibit B is a comparison of storm water fees for single family residential
development. It is very difficult to get an accurate comparison of surface water area
charges between cities, because they calculate developable acres differently and often
apply ponding and piping credits on a site specific basis. Therefore, the fees in Exhibit B
assume 3 single family units are developed per acre and there is no on-site ponding. In
actuality, a Chanhassen developer would typically develop 2.4 units per acre and get a
ponding credit.
The fees projected in Exhibit A will allow the City to maintain and expand its surface
water utility as required by state regulation. The proposed fee structure also improves the
equity in the system by matching the level of the fee to the costs for which it is intended
to pay.
t
3060 Centre Pointe Drive
Roseville, MN 55113-1105
(651) 697-8546 Fax: (651) 697-8555
jcook@ehlers-inc.com
http://www.ehlers-inc.com
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Exhibit B
2005 Fee Comparison
Development and Recurring Charges for Storm Water
Area Charge
Storm Sewer
$4,200/acre
Water Ouality
$1,093 to
$8,015/acre
depending on
development
type
$2,700/acre
none
WaterOuantity
$2,705 to $5,957
per acre
depending on
development
type
$.1233/s.f. low density residential
$.2185/s.f. high density residential
$.263 1/s.f. Commllnd.
Area Char~e
$0.085/s.f.
$0.104/s.f.
$0.109/s.f.
$0. 114/s.f.
Water Ouality
$920/acre
$1,725/acre
$2,600/acre
$5,650/acre
Six water drainage districts.
Rate depends on existing infra-
structure, development type, and
amount of on-site ponding.
Low Density Rate:
Trunk Sewer $.05-$.20/s.f.
Ponding Quantity $.08-$.27/s.f.
Ponding Quality $.04-$.08/s.f.
Surcharge $.0 - $. I 8/s.f.
Med. density, increase by 125%
Hi h densi increase b 150%
I &2 family-
multifamily -
Commllnd. -
$0.093/s.f.
$0.127/s.f.
$0.140/s.f.
Storm Sewer Charges
single family $.171/s.f.
multifamily $.206/s.f.
C/I- varies by impervious area
Ponding Fee !ifno on-site Dond)
single family $0.084/s.f.
multifamily $0.143/s.f.
it;
Comm./Ind.
$0.286/s.f.
$1,400
$1,266
$900
$0
$1,790
$1,541
$1,742
$1,350
$2,483