SUBJECT:
Title
An Ordinance of the Town Council of the Town of Erie Adopting New Water Tap Fees, Fees in Lieu of Water Dedication and Wastewater Tap Fees
Body
DEPARTMENT: Utilities Department
Finance Department
Department
PRESENTER(S): Todd Fessenden, Utilities Director
Sara Hancock, Finance Director
First Name Last Name, Title
TIME ESTIMATE: 15 minutes
only required for non-consent items
POLICY ISSUES:
Based on detailed study, the proposed fee changes are needed to provide sufficient revenue to operate and maintain the Town’s existing water, wastewater, and stormwater systems and increase the tap and water dedication fees to generate sufficient revenue to expand the system to serve new development.
STAFF RECOMMENDATION:
Recommendation
Approve the updated tap and dedication fees.
End
SUMMARY AND BACKGROUND OF SUBJECT MATTER:
This ordinance was originally presented to Council for adoption on Sept. 24, following an Aug. 8 Study Session on the results of the Utility Fee and Rate Study. Council asked staff to clarify the fees related to small homes, and staff made those clarifications to the ordinance. After that, staff presented the ordinance to Council for consideration on Oct. 22. After discussion, Council tabled the Ordinance pending a community roundtable with Town staff to explore recommendations for an alternative.
The Town of Erie Financial Policies require the Town to have a formal rate study performed on the utility fund (water, wastewater, and storm drainage) charges at least every five years. Bond indentures also require the Town to ensure that its fees are adequate to ensure compliance with all bond covenants. Staff conducted the last formal rate study for these funds in 2020. In 2020, the Council reviewed and adopted the results of those rate studies, setting rates and fees for the period 2020-2024. It should be noted that any changes to the recommended rate study and the impact to long-term financial strategy are disclosed when seeking debt issuance and is a factor in maintaining the Town’s bond rating. The Town’s current bond ratings are stellar, at Aa2/AA-. In the last review, the Town’s ratings on its water system revenue bonds were increased from Aa3 to Aa2. The wastewater system revenue bonds were increased from A+ to AA- by S&P Global and are currently under review with the recommended rate study, as presented originally by Town staff, as the supporting documentation.
The Town began the current rate study process in late 2023. The Town contracted with Raftelis Financial Consultants (Raftelis) in August 2023 to perform the formal rate study for water, wastewater, and storm drainage monthly customer charges, water and wastewater tap fees, raw water dedication fees, and storm drainage impact fees.
Summary of Rate Study
The goals of the rate study are to determine the revenue needed to cover annual operations and maintenance costs and capital improvement projects, meet debt service requirements, provide for sufficient operating reserves and maintain the utility’s self-sufficiency over a 5-year period. Moving forward, staff recommend evaluating fees every two years, with a more in depth study every 4-5 years to address capital projects and rapid growth.
The key assumptions used in the rate study are as follows:
• Residential growth: 650 taps per year
• Target Reserves: 90 days of operations plus one year’s depreciation expense
• Debt Service Coverage: As required by the respective debt covenants
Permit-Related Fees
Water and wastewater tap fees, water dedication fees, and storm drainage impact fees (among other fees) are paid at the time of issuance of a building permit. The following discussion presents the proposed changes to these fees.
Changes to Recommended Rate Study for Tap and Dedication Fees
Per Council direction, the Town engaged in a roundtable with developers, resident representatives, and Town staff to develop collaborative recommendations for changes to the current recommended rate study. Recommendations from this roundtable have been reviewed by Town staff and the consultant for feasibility. Because the cost of operating the water, wastewater, and storm drainage funds is established, Roundtable participants considered only recommendations that do not jeopardize the Town’s financial position, infrastructure maintenance, and growth-related obligations as an alternative to the fees as recommended.
Many collaborative recommendations resulted from the discussion. To achieve a strong financial position for the Town’s enterprise funds and ensure community stakeholders had sufficient time to incorporate fee changes into business plans, the roundtable recommended a phased payment structure which could be adopted immediately with the updated fees.
This structure will maintain the proposed tap and dedication fee amounts but will allow for payment of the fees at two points in the development process. The Municipal Code will be updated to reflect this process as follows:
For calendar year 2025 only, Owner shall have the option to pay, at the time of application for the permit described in Section 8-1-7.A, the Water Tap Fee and Fees in Lieu of Water Dedication in the 2024 Fee Amounts set forth in the table below. If Owner elects such option to pay the Water Tap Fee and Fees in Lieu of Water Dedication in the 2024 Fee Amounts at the time of permit application, then prior to the Town's issuance of a certificate of occupancy, and in no event later than nine (9) months from initial permit application, Owner shall pay the difference between the applicable 2024 Fee Amounts and the 2025 Fee Amounts. The Town will not issue any certificate of occupancy until the 2025 Fee Amounts have been paid in full.
All stakeholders at the roundtable maintained consensus that this achieved the “win-win” solution Council requested at the Oct. 22, 2024 meeting. Town staff and consultants evaluated and confirmed that the recommended changes to these fees described above would not impact the residents’ water rates, which are currently proposed as an average 4.5% increase. The attached ordinance updates the fees and municipal code to reflect this recommendation.
COUNCIL PRIORITY(S) ADDRESSED:
ü Engaged and Diverse Community
ü Prosperous Economy
ü Safe and Healthy Community
ü Effective Governance
ü Environmentally Sustainable
ü Fiscally Responsible
ATTACHMENT(S):
1. Ordinance 039-2024
2. Presentation