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HomeMy WebLinkAboutIR 7048 INFORMAL REPORT Tt, CITY COUNCIL MEMBERS No. +'RTIpf'D August 27, 1985 ;DE50)? o To the Mayor and Members of the City Council 9 u � a �rEXPy Subject: WATER AND WASTEWATER SYSTEM DEVELOPMENT CHARGE ADVISORY COMMITTEE BACKGROUND In many growing communities new or expanded facilities often must be built to meet antici- pated growth before the customers are in place to pay for service. To finance this growth, capital must be raised in difficult markets to fund construction costs and increasingly sophisticated equipment requirements. And finally, these issues must be presented to elected officials and consumers for scrutiny. A utility incurs expansion costs and, to a lesser extent, modernization and replacement costs, when it provides capacity for future users. Such expansion can only be accomplished in large increments. If these costs are imposed on current users, it can be agreed that an inequity occurs, in that current users are subsidizing future users. One alternative is the imposition of system development charges, such as a connection fee. Newer rate-setting philosophies suggest that utility revenue sources should include a system development charge for each class of customer to cover a water utility's invest- ment in plant and equipment. For example, many utilities charge some form of connection fee to help recover some portion of the system's capital costs or to pay for additional improvements required by the demand placed on the• system by new customers. This type of user charge can be reasonably called a system development fee only if the revenues in excess of meter and installation costs are actually used to offset capital costs rather than current operating expenses. One approach has been to use the familiar and tested "cost-of-service" methodology to cover future needs as opposed to merely covering the cost of depreciation of existing assets. Effective use of any system development charges will depend on a consistent and non-discriminatory cost allocation method that is acceptable to the participants in a specific regulatory environment. This approach has been adopted by the City of Fort Worth as the methodology which will be used to develop a system of water and wastewater system development charges. The Fort Worth City Council has instructed the City staff to develop and recommend a schedule of charges to address utility expansion costs. The development of the charges will involve the assistance of an independent consultant and the active participation of an advisory committee representing homeowners and the building and development community. On August 6, 1985 (MSC C-9165) the City Council authorized the City Manager to execute a contract with David M. Griffith and Associates, Ltd. to develop a capital recovery fee schedule. At this time the staff recommends that the following goals and objectives be established for the system development fee advisory committee: 1. Assure that the proposed fees are based on cost-of-service principles for the water systems as a whole and the wastewater system as a whole. The fees for water and wastewater would therefore be independently derived and each should stand on its own merits. 2. Assure that the system development , ,ho, d fee structure will enjoy the support of the community. ISSUED BY THE CITY MANAGER ��� ' SECREYARY FORT WORTH, TEXAS FT. � INFORMAL REPORT TO CITY CG 4CIL MEMBERS No. 7048 - p.2 �,PT14, August 27, 1985 �OEfORTTo the Mayor and Members of the City Council ti p1 V� _ TFxay Subject: WATER AND WASTEWATER SYSTEM DEVELOPMENT CHARGE 1073 ADVISORY COMMITTEE 3. Assure that the system development fee methodology will minimize administrative costs while achieving all other goals. 4. Assure continued protection of the health and welfare of the community by recommending a fee schedule which will allow the water and wastewater utilities to provide adequate service to service areas designated by the City Council. In addition to these goals and objectives, the advisory committee should determine that the proposed fees will stand the following tests of reasonableness: 1. Benefit: Revenues generated must be sufficiently earmarked for the substantial benefit of the persons paying the fee. (Benefits to be defined on a system wide basis). 2. Attribution: The funds generated must offset needs attributable to those paying the fees. (Costs to be defined on systemwide basis). 3. Rational and Quantifiable: The City must demonstrate a reasonable connection between the need for additional capital facilities and the persons required to pay the fee. 4. Fair Share: Fees must not be greater than a proportionate fair share of the cost to accommodate new users. 5. Equity: The City cannot contractually grant some customers within its service area "free" service. It is anticipated that the advisory committee will meet with the City staff and its consultant five or six times over a six month period. In addition, two public hearings are presently envisioned to receive input from the community during the process. Unless directed otherwise, the committee representatives will be informed of the above goals and objectives as the Council charge for this advisory group. CONCLUSION The following representatives have agreed to serve on the advisory committee Community Sector Representative 1. Land Development Jim Harris 2. Buildings Don Little 3. Engineering Bill Bell 4. Finance Phil Norwood 5. Neighborhoods Ben Ann Tomayko 6. Customer Bob Gunn 7. Legal Jeff Davis Should you desire additional information on this matter, it will be provided. ouglas Harman City Manager DH:hl ISSUED BY THE CITY MANAGER FORT WORTH, TEXAS