Stormwater System Development Charge (SDC)
Tim Gerling, Mark Johnson, Debbie Galardi, and Steve Downs presented information on Stormwater SDCs, including the difference between the Improvement SDCs and the Reimbursement SDCs.
Debbie Galardi presented information and discussion on the following topics as covered in the handout materials (file copy attached):
1. SDCs in infrastructure financing
2. SDC methodology
3. Calculation of stormwater SDCs
4. SDC examples and community comparison
Statute states that you can implement an SDC that is a reimbursement fee (SDCr )or an improvement fee (SDCi), or a combination of both. The reimbursement fee is the portion of the SDC charge designed to recover the current investment in the system. The improvement fee is related to future investments, which have to be improvements in capacity. Legislation provides other provisions in addition to defining types of fees and requests. It does identify which systems are eligible for SDCs, i.e., water, wastewater, stormwater, parks, etc. There are provisions that relate to credits for qualified public improvements. Basically, you can't use SDC revenues to fund operations and maintenance. You have to use it for the system for which you collected it. The improvement fees have even more restrictions.
Overview of cost allocation methodology:
First step is to determine the capacity requirements of growth and this was just done as part of the Stormwater Master Planning project. From that, a list of specific capital improvements for the improvement fee is identified and those that are capacity increasing are eligible for cost recovery from the SDCs; next is a unit cost calculation, where cost is divided by capacity requirements of growth and you get the system-wide average unit cost of capacity. From that, you develop a schedule to recover from individual development.
There was initial policy direction from 1998 from the Water/Wastewater SDC development process. Reimbursement value for SDCr was computed using assets, and at that point in time, book value was selected. Additional direction was that improvement costs be based on the full master plan thru buildout. Both reimbursement and improvement would be recovered.
For stormwater, we had to consider how to charge for different development types. For water/wastewater SDCs, the charge is based on the water meter size. We also had to consider policy based credits for development that exceeds onsite standards. There was also the issue of quantity vs. quality of fees.
Mark Johnson presented information from a table showing the area over which improvement costs identified in the master plan will be spread. It is broken out by subbasins within the City. There are about 5,700 acres of developable impervious acres within the UGB. Information presented also covered growth-related costs. $203 million improvement costs were identified through the master plan, by basin. A portion of that is due to growth and a portion due to pre-existing uses. $29,202,953 is the total improvement cost for growth.
13.5 percent of capacity could be assigned for future growth uses. This tells us that there is a lot of the system that is currently substandard. In the master plan, the evaluation did not model every last subbasin. There were additional needs, but they were not quantified on a project by project basis. Other costs include ongoing monitoring, modeling, and inventory of the systems. There was an allowance for water quality facilities, understanding that there would be some requirement for this and not being able to quantify exactly what those requirements would be. In the master plan, there was a two percent allowance for water quality facilities. The last part identified as part of the growing understanding about the needs of the storm drainage system were streams and habitat groups - three percent. Adding all those pieces together and applying the 13.5 percent, the $27 million increases to $29.2 million. That is the total improvement costs that have been identified that would be spread over those future impervious acres.
Reimbursement methodology discussed at this time. Basically, the reimbursement amount is allocation of useable existing excess capacity for growth and charges for that excess capacity.
At this point, Debbie Galardi presented information on proposals for SDCs for multifamily and single family residential. This information is contained in the handout material. Basically, everyone except for single family and duplex would be on an actual measured basis. Single family and duplex would be average estimates. Sidewalk and street are not included in the impervious area.
Steve Downs at this time presented comparison information for other communities. He gave an overview of the information contained in the handout material (copy attached for file). He also included dollar figures for various typical buildings/commercial properties in the Salem area.
Medford and Corvallis have both SDCr and SDCi. Corvallis also has an "interim" fee. Frank Mauldin stated that there has always been a policy discussion of how to base the reimbursement SDCs - book value vs. replacement value. This is going to be part of the City Council policy item. Springfield and Eugene do use replacement value. We need to be consistent. We can't use one method for water and one for sanitary and another for storm.
Steve presented a summary comparison of Stormwater SDCs of 18 different communities. Salem is about in the middle.
The proposed Stormwater SDC Recommendations were as follows:
- Adopt an interim Stormwater SDC that includes only an improvement (SDCi) component; and
- Adopt the recommended methodology for allocating costs to growth; and
- Adopt an SDCi fee of $0.12/sq. ft. on a measured impervious surface basis for all new construction; and
- Adopt a flat "per EDU" fee structure for single family residences and duplexes; SDCi = $383/EDU; and
- Staff to explore credits; and
- Recommend to Council that staff continue working on a reimbursement fee (SDCr), and a quality component for the SDC fee.
Wendy Kroger - If this is a policy that the City knowingly adopts, and understands completely what they are doing, and a giant flood occurs and it wipes out the infrastructure, what is the argument that is going to be made that the City knowingly undervalued and therefore gets killed in terms of insurance rates. Tim replied that the risk is pretty small in the real world. Salem is not the only one doing this. Every community in the United States basically has been working on depreciated book value for a lot of reasons. Self insurance maintenance guarantee - an operating reserve to guarantee that you have enough money. Sort of like when bonds are sold - you have to have certain ratios of income to expenses in order to be considered a goo risk for lending.
Discussion at this time turned to streets and conveyance systems. Frank Mauldin stated that one of the reasons why we are not going to charge an SDC on streets is that the developer for a subdivision builds the street, he is the one that gets the credit back. If you add the SDCs to the house and then the builder pays the SDC, he passes that on to the homeowner and the homeowner is paying an increased cost of his home and the developer is getting the credit back. All you are doing is arbitrarily raising the cost of SDCs for the homeowner.
More discussion on transportation SDCs. Steven Anderson asked about O&M costs and if there is anyway to put a minimum reimbursement fee and quality fee in this rate?
There should be some money in there that would alleviate that for the interim development and also cover environmental improvements. Tim directed members to look at page 10 of the handout materials. Improvement SDC has to be on capital improvements, replacement SDC does not. Frank Mauldin stated that the City is meeting all the standards right now for the permit for stormwater.
Wendy Kroger's questions: It is critical that we are comfortable with and know that we have the right numbers, percentages, rates, etc., in that we have the flexibility to modify those. There are several different studies with different groups in the City doing different things. A way to quantify the value of tree canoopy as, basically, stormwater savings. That is not something that could be done, defended in a court of law with regard to SDCs. Somebody in the system should put a dollar value on that and at least it could be recognized, saying "it's been done and we think the limitations are . . ." Wendy thinks it was very helpful in the public presentation.
Councilor Bennett reviewed the Proposed Stormwater SDC Recommendation as shown in the handout material. Eleanor Miller made a motion to accept the recommendation as written, seconded by Wendy Kroger, all in favor, none opposed, so motion carried.
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