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Sewer Conn Fees Waive J MillerMEMORANDUM TO: December 9, 2003 The Honorable Mayor and City Council Members FROM: Michael C. Van Milligen, City Manager SUBJECT: John Miller Request to Waive Connection Fees Mr. John Miller is asking that the City waive sewer and water connection fees for property he wants to develop on Peru Road and Roosevelt Road. In June of 2002 the Affordable Housing Task Force recommended to City Council that they waive certain connection charges for sewer and water mains. The following is the Task Force Incentive Recommendation Number 2. Task Force Recommendation: Water main and sanitary sewer connection fees and/or assessments to be waived if parameters for affordable housing are met. The cost saving measures recommended by the Task Force and approved by the City Council were intended to result in the construction of affordable housing that most likely would not occur without such measures. These measures were intended to promote the construction of new subdivisions that provide affordable housing by allowing developers to build narrower streets and parkways with limited parking. Water main and sanitary sewer connection fees were also to be waived if the parameters for affordable housing developments were met. it was clear from the recommendations of the Affordable Housing Task Force that its goal was to reduce development costs and ultimately prices for single-family owner-occupied homes for new subdivisions. In the context of Affordable Housing as considered recently by the City Council, the kind of infill housing on existing City streets, which Mr. Miller is proposing, was never included in these newly adopted policies. For infill lots in the City where the developer is willing to meet the City's requirements for affordable owner-occupied housing, it is very tempting to recommend approval of the request. This certainly would fit with smart growth principles. However, there is a significant issue for the City as far as the soume of these funds. The sewer interceptor fee that is waived is a Capital Improvement Project item. Therefore, when that fee is waived, it only negatively impacts the City's CiP budget, reducing the ability to do other projects. The $90,000 per year in sewer and water connection fees goes into the operating budget of those utilities to pay annual operating expenses. If the City chooses to waive these fees for all parcels that are developed in the City for affordable owner-occupied housing, assuming 50% of the projects each year are for affordable projects, it would cost the operating budget approximately $45,000 a year between the two utilities. On these 10 lots alone, the sewer fund would lose $6,078 and the water fund would lose $7,601. If this policy change is adopted, an additional rate increase in Fiscal Year 2005 would be needed to account for this loss in operating funds. Mr. Miller had also requested that building permit fees be waived. The Affordable Housing Task Force rejected this concept, and it is not done for any construction projects. Based on the impact on the operating budgets of the two utilities, I respectfully recommend denial of Mr. Miller's request. MCVM/jh Attachment cc: Barry Lindahl, Corporation Counsel Cindy Steinhauser, Assistant City Manager Gus Psihoyos, Assistant City Engineer Mike Koch, Public Works Director Pauline Joyce, Administrative Services Manager David Harris, Housing and Community Development Department Director MEMORANDUM December 8, 2003 TO: FROM: SUBJECT: Michael C. Van Milligen, City Manager Gus Psihoyos, Assistant City Engineer Bob Green, Water Department Manager John Miller Request to Waive Sewer and Water Connection Fees Attached you will find a letter from John Miller of 920 Roosevelt Street regarding several vacant lots he owns on Peru Road and on Roosevelt Street. Mr. Miller is requesting that the City waive sewer and water main connection fees for homes that he is proposing to build on these lots. BACKGROUND in June of 2002, the Affordable Housing Task Force recommended that the City Council waive certain connection charges for sewer and water mains. The following is from the Task Force Incentive Recommendations: "2. Task Force Recommendation: Water main and sanitary sewer connection fees and/or assessments to be waived if parameters for affordable housing are met. Staff Information Recommendation For the Callahan subdivision proposal, City staff recommended waiver of the sewer interceptor hook-up fee because the City has already incurred the cost of the sewer interceptor with the construction of the industrial park. For this project, City staff also recommended a five-year, no-interest loan for the water hook-up fee instead of the waiver of this fee, because the water main extension [unlike the sewer interceptor] would be an expense that the City now must actually incur. The City must be paid back for this expense, to avoid an increase in water rates. Our recommendation is to waive these [interceptor and feeder main] fees only if the water and sewer mains are in place. If the City must incur the cost of installation of these mains, then we recommend that the developer pay back the cost as lots are sold, with a no-interest, five-year loan." The Task Force made these recommendations in response to a request from Joel Callahan for the proposed Callahan Subdivision on Seippel Road. This subdivision was intended to be for moderate-income housing. The Task Force discussions on sewer connection fees related to the City's newly established connection fees for interceptor sewers. For purposes of this memorandum, the following terms have the following meanings: Interceptor Sewer.' The major sanitary sewer line that serves a watershed. Collector Sewer: The sanitary sewer that connects to the interceptor sewer that serves a sub-basin in a watershed. Main Sewer: The sanitary sewer that is connected to the collector line in the sub-basin that serve individual streets. Lateral: The sewer that is connected to the main sewer line in the street to the private home sewer system. Feeder Main: A water main that supplies a particular parcel or parcels with water service and fire protection. DISCUSSION The cost savings measures recommended by the Task Force and approved by the City Council were intended to result in the construction of affordable housing that most likely would not occur without such measures. These measures were intended to promote the construction of new subdivisions that provide affordable housing by allowing developers to build narrower streets and parkways with limited parking. It was also recommended as an incentive to the construction of affordable housing that water main and interceptor sanitary sewer connection fees (but not main sewer fees) be waived if the parameters for affordable housing developments were met. The Task Force recommendations adopted by the City Council with regard to affordable owner occupied housing were intended only as a guide for City staff. The general statements in the recommendations do not disclose the full intent of the recommendation. The recommendation to waive sanitary sewer fees was specifically focused on interceptor sewer fees and the recommendation to waive water main fees was specifically focused on feeder main lines. Mr. Miller obtained a copy of the policy and concluded that his project could meet the requirements, allowing sewer main fe~s to be waived. However, the Affordable Housing Task Force never discussed main connection fees like his associated with existing lots scattered throughout the City. In summary, the Task Force formed its recommendations based on subdivisions, such as Mr. Callahans, that are new developments, with City streets, sewers, water main and storm sewer improvements, to be dedicated to the City. The mission of the Task Force was to evaluate the possibility of reducing a developer's costs as they relate to new subdivisions and, ultimately, the affordability for single-family owner occupied housing. The Task Force was not asked to and did not address Mr. Miller's concerns of development for single-family homes on existing streets with existing infrastructure. BUDGETIMPACT Hundreds of connection fees similar to those Mr. Miller is asking the City to waive have been collected by the City to support its operations. The City receives about $90,000 per year in revenue from such connection fees. The lost revenue from waiving such fees would have an impact to operations and could result in the need for higher water and sanitary sewer fees for users. On these 10 lots alone, the sewer fund would lose $6,076 and the water fund would lose $7,601. The sanitary sewer fee would have been an additional $14,652 had it not been for an assessment collected from a previous owner of the lots on Roosevelt. RECOMMENDATION We would recommend that the City Council provide staff direction as to the following: Whether it was the City Council's intent that the Affordable Housing Task Fome recommendation of waiving interceptor sewer fees should apply to both interceptor and main sewer fees; and Whether it was the City Council's intent that the Affordable Housing Task Force recommendation of waiving water feeder main fees should apply to both water feeder main and water main fees. ACTION TO BE TAKEN We respectfully request that the City Council provide staff direction as to the foregoing Affordable Housing Task Force recommendations regarding sewer and water fees. CC' Pauline Joyce, Administrative Services Manager Dawn Lang, Budget Manager Michael A. Koch, Public Works Director Barry Lindahl, Corporation Counsel David Harris, Housing/Com. Dev. Director Laura Carstens, Planning Services Manager To Whom It May Concern: I am writing to ask for a special exception, on fees charged by the city of Dubuque nnder your medium income housing guidelines. The developments in question are, lots 7, 8, 9 & 10 of.O'Neill's North Dubuque, with addresses of 3930, 3940, 3950 & 3960 Peru Rd. The sizes ofthe lois are 7800, 8150, 8670, & 9133 square feet respeetively. All lots are RI and could have a single-family home on then~ I ask the city of Dubuque to waive the $41.00 per foot for water and sewer hookups on the appmxlmate 50-f0ot.frontage of each lot. ALso to waive the fees of'approximately $700.00 for permits, including but not be limited to mechanical, elecltica[ plumbing and building permits required by the city. I ask for/he same consideration on lots 14, 15, 16, 17, lg, and 19 of Wersinger subdivision on Roosevelt St. These lots hre R2 and have approximately 11250 square feet per lot and appm×imately 75 foot of frontage. They could contain a duplex for two single-f, mily occupants. I have.inoluded a floor plan and a view from the front for your eousideratious. Although both parcels have been platted, they are not correct or complete, and therefore must be surveyed and must each have abstracts.created far them from scmtetu I ask the city for help in keeping the development cost down, as these lots are hilly and rocky, me&ing them expensive to develop. In rbturn I am able to give the city future generated revenue on' 16 potent[al residential units from utilities and taxes.-I can also keep the' sale cost at the medim income sale ptiee while supplying a very nice home on a very nice lot, therefore creating a winning patemership between the city, 0ceupant's, and developer. 920 Roosevelt- St. Dubuque IA. 52001 563 495-1888 CITY OF DUBUQUE, IOWA MEMORANDUM \ GUS PSIHOYOS 20 June 03 To: Mike Va~\,~illigen, City Manager From: David~rris, Housing and Community Development Department Re: Up-date to Affordable Housing Task Force Report We are currently in discussions _with several developers who have e~pressed interest in building affordable housing and utilizing the incentives recommended in the report of the .Affordable Housing Task Force, delivered in worksession to the Council in December 2001. This memorandum provides an up-date to reflect current real estate market conditions and to incorporate revised income targets for affordable housing. Operafin.q Principles and Assumptions . The City Council's directive to the Affordable Housing Task force wa~ to research and recommend -ways to produce newsingle-family ho,.ming that is ~affordable" to a moderate-income household. A "moderate-income household," at the time of the Task Force report, was · ,e,,,,~, as earning ~,~n 7~n h~,,,etahnl~d ei~.a ~I. namnna ~,atlfh ~ marnnr~' wages at $10/hour. This number was chosen as the target wage we wanted employers being recruited to the City's newly annexed office and tech parks to offer to their workers. ~Affordabie= housing is defined.as costing no mere the 30% of gross income for PITI: principal, interest, taxes and homeowner and mortgage insurance. 3. Typical financing for this scenario assumed a 7.25% interest rote, 30-year term and 5% downpayment. The Task Force assumed a "modest' new home, affordable to a family at ..... ou,,a and be no more than this income, Would cost $?~O/square mo[ [o', i: - 1100 square feet in area. This home would include a 2-car attached garage, unfinished basement with a lot priced at $30 000. 5. At $129 000, this home was not affordable to the target family earning $40 780. To be affordable, that home could sell for no more than $118 000, leaving an $11 000 "affordability gap." Recommended Incentives to Reduce Development Costs The Task Force report recommended the following incentives to developers to reduce costs, in order to lower lot prices. 1. Public street pavement width reduced to 27 feet, right-of-way width reduced to 42 feet. Parking restricted to one side .only. 2. Water main and sanitary sewer connection fees and/or assessments to be waived. 3. Lot prices capped at $25 000, increases adjusted annually to Consumer Price Index. 4. Lot frontage minimum reduced to 50 feet; ma)dmum width 75 feet. Homes in affordable developments built larger than 1250 square feet to have a $10/square foot surcharge assessed, to be used to capitalize an affordable housing revolving loan fund. 7. PVC pipe to be allowed for water and sanitary sewer installations. 8. City Enterprise Funds to be used for O-interest, 5-year loans for installation of water and san.Lta_ry sewer and sto..._rmwa.~ ter systems~. 8. Engineering Division to evaluate feasibility and cost effectiveness of alternative street construction standards, to reduce costs. 9. 2000 International Residential Code to be adopted for use by Buildir~ Services Department in permitting new construction. Up-Date Interest rates have signifiCantly changed since the Task Force report was issued. Low financing rates have dramatiCally impacted affordability, allowing a moderate-income family to purchase a more expensive home. The rate assumed in the 2001 report was 7.25% on a 30-year mortgage. For ibis · update report, the interest rate used is 5.25%. The $101hour wage rate targeted in the 2001 report has been increased by annual 3% adjustments, resulting in a $10.61 wage for our target family earner. For a two-earner household, this is a $44 -136 annual income. Using all the other assumptions from the 2001 Task Force report, we calculate that in today's market a Dubuque family earning $44 000 can afford a home pdced at $134 000. Analysis provided by the Building services Depa~b[~ent shows that the average permit cost for a new single-family home in Dubuque in 2002 was $125 000. Adding an average lot cost of $35 000 brings the new home sale price to $160 000~ The 'affordability gap' - between $134 000 and $160 000 - has increased to $26 000. Incidentally, th® median sale price for a MLSqisted home in Dubuque County, in 2000, was $93 500. Figures provided by the Board of Realtors for this report indicate that the median pdce in 2002 increased to $t05 000.