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Sanitary Sewer Asses. AssitanceCITY OF DUBUQUE, IOWA MEMORANDUM February 17, 2000 TO: The Honorable Mayor and City Council Members FROM: Michael C. Van Milligen, City Manager SUBJECT: Special Assessment Repayment Interest Rates Based on concerns about the impact of assessable sewer projects on low and moderate income individuals, the City Council directed that staff review the interest rates charged on the unpaid balance of assessments. Currently, the City charges the maximum rate allowed by state law, 9%. Consequently, most people pay the full amount of the assessment when it is due, instead of paying over ten years. The most significant potential financial impact of reduction in interest charged for special assessment is not the reduction in special assessment interest revenue, but the possibility that many more property owners may choose to pay assessments over time rather than in a lump sum. If a large number of property owners begin paying assessments over time, the City would need to fund assessment projects by some other method, such as special assessment bonds or general obligation bonds. Special assessment bonds have fallen out of favor with the market due to greater repayment risk and have higher interest rates and issue costs, leaving general obligation bonds as the better funding alternative. Since assessment funding requirements vary greatly with projects and completion dates can be difficult to predict, the City would need to estimate the funding needs and issue bonds to cover several assessment projects. The FY 2000 budget includes $659,000 in project assessments and the five-year CIP includes $3,216,115 in assessments. If a large portion of these assessments were paid over time, a new source of funding would be required for the assessable portion of these projects. As opposed to lowering the interest rate, staff is recommending an assistance program to help low and moderate income residents pay their sewer assessments. This is the identical program that is now used in the street program. The Honorable Mayor and City Council Members Special Assessment Repayment Interest Rates Page 2 The assistance program would use an assistance formula based upon a graduated income scale. Assistance would be available from 20% to 100% of the sanitary sewer assessment, based upon the number of persons in the household and the income level. I concur with the recommendation and respectfully request Mayor and City Council approval. Michael C. Van 'Milligen MCVM/dd Attachment cc: Barry Lindahl, Corporation Counsel Tim Moerman, Assistant City Manager Duane Pitcher, Finance Director CITY OF DUBUQUE, IOWA MEMORANDUM January 12, 2000 TO: Michael Van Milligen, City Manager FROM: Duane Pitcher, Finance Director SUBJECT: Special Assessment Repayment Interest Rates INTRODUCTION The City interest rate for repayment of special assessments was discussed as part of the sanitary sewer extension project for Florence, Villa, and Mountain Lane. The City Council requested that City staff provide information on the financial affects oflowering the interest charged for paying special assessments. BACKGROUND The City of Dubuque sets an interest rate for repayment of special assessments through the County; this rate has been set at the rate for special assessments established by the State Treasurer, currently 9.0%. The rate set by the State Treasurer is the maximum rate that can be charged for repayment of special assessments per Chapter 74A.4 of the Code of Iowa. Prior to local option sales tax, the City regularly issued special assessment bonds to fund the property owner portion of street projects funded by assessment. The use of local option sales tax had two positive effects on the funding of special assessment projects; the assessment amounts were greatly reduced, and a larger number of property owners began paying their assessments in a lump sum rather than over time. This has eliminated the need to issue bonds to fund the property owner portion of special assessment projects. In addition to reducing assessments through local option sales tax, the City has an existing street assessment assistance program that allows lower income homeowners to receive up to a 100% reduction in their assessment. A similar program does not exist for sewer assessments. A program is in place to provide assistance to low and moderate income residents for sanitary sewer connections to existing lines. DISCUSSION The most significant potential financial impact of reduction in interest charged for special assessment is not the reduction in special assessment interest revenue, but the possibility that many more property owners may choose to pay assessments over time rather than in a lump sum. If a large numbers of property owners begin paying assessments over time, the City would need to fund assessment projects by some other method such as special assessment bonds or general obligation bonds. Special assessment bonds have fallen out offavor with the market due to greater repayment risk and have higher interest rates and issue costs, leaving general obligation bonds as the better funding alternative. Since assessment funding requirements vary greatly with projects and completion dates can be difficult to predict, the City would need to estimate the funding needs and issue bonds to cover several assessment projects. The FY 2000 budget includes $695,000 in project assessments and the five-year CIP includes $3,216,115 in assessments. Ifa large portion of these assessments were paid over time, a new source of funding would be required for the assessable portion of these projects. There was some discussion at the meeting comparing home equity loans to repaying special assessments over time. Currently some home equity loans available at rates less than the 9.0% set by the City for special assessments. Home equity loans tend to be floating rate loans based on the prime rate while the special assessments have a fixed rate over the term of 10 years. Home equity loans offer much more flexibility on terms of the loan and prepayment. The differences in interest rates the City charges and advantages and disadvantages of type ofloans will be irrelevant to some low and moderate income residents who do not have the resources to pay for the assessment regardless of the loan terms. For these residents, a program that reduces the assessment amount will best address the issues discussed during the City Council meeting. ACTION For your review and discussion with the Honorable Mayor and City Council. After our meetings with engineering and budget staff, we determined that the best method to provide meaningful assessment assistance would be through a program similar to the street assessment assistance program which lowers the assessment amount based on income. My recommendation is that the City establish an assessment assistance program for sewer assessments similar to the existing program for street assessments. I further recommend that we maintain the special assessment rate at the maximum rate set by the State Treasurer. If the decision is made to provide a lower rate, I recommend that the rate be set at a standard spread to the maximum rate set by the State Treasurer, possibly 1.0% to 1.5% under the maximum rate. cc: Pauline Joyce, Administrative Services Manager Mike Koch, City Engineer Gus Psihoyos, Assistant City Engineer Jerry Hird, City Treasurer CITY OF DUBUQUE, IOWA MEMORANDUM February 3, 2000 TO: Michael C. Van Milligen, City Manager FROM: Gus Psihoyos, Assistant City Engineer SUBJECT: Sanitary Sewer Special Assessment, Financial Assistance Funding Opportunity INTRODUCTION The purpose of this memo is to recommend a program that could potentially provide for financial assistance to fund sanitary sewer assessments for low to moderate income owner-occupied properties. This program would be implemented as part of the City Council's request that City staff provide for a mechanism to reduce special assessments for unusually expensive sewer extensions such as the Florence, Villa and Mountain Lane project that currently is under construction. BACKGROUND The City already has a couple of programs that provide financial assistance for private sanitary sewer lateral connections from the public main to the home. Those programs include "Assistance to Low/Moderate Income Residents for Connection Charges" and "Sewer Lateral Connection Assistance Program". (See attached CIP Excerpts). This program would go a step further than the existing programs by reducing costs for special assessments on sewer extension projects, some of which can be extremely expensive due to difficult laying conditions and terrain. The City currently has a similar program in place to help defray costs for special assessments to low and moderate income owner-occupied properties for street program assessments. This new program would help defray costs for sanitary sewer assessments based upon financial need. The funding program would use an assistance formula based upon a graduated income scale (see attached summary of recommended income levels), The City would pay for the assessment cost greater than the maximum rates contained in the funding chart and would not increase the assessments on other properties if this policy is adopted as proposed, Assistance would be available from 20 percent to 1 00 percent of the sanitary sewer assessment, based upon the number of persons in the household and income level. The City funding for this program would come from balances in the assistance programs for "Sewer Connections Assistance for Low to Moderate Income Residents" and the "Sewer Lateral Connection Assistance Program", Attached you will find a copy of information which would be sent to property owners along with final special assessment notices on sanitary sewer projects as they are completed and the assessments are levied, GP/ka cc: Michael A, Koch, Public Works Director Pauline Joyce, Administrative Services Manager INFORMATION FOR PROPERTY OWNERS REGARDING FINANCIAL ASSISTANCE ON SEWER ASSESSMENTS FOR LOW AND MODERATE INCOME FAMILIES Enclosed are application forms for financial assistance which is available from the City of Dubuque to defray a portion or all of special assessments for the (Project Name) Sanitary Sewer Construction Project, Applications must be received by ,2000. The financial assistance is available for owner-occupied residential properties with low and moderate income families, Qualifying families are eligible to receive between 20% and 100% of the amount of sanitary sewer special assessment (depending upon income level). Persons in Household Financial Assistance Available Maximum Gross Income for 20% Funding Maximum Gross Income for 100% Funding 1 2 3 4 5 6 7 8 or more 24,080 27,520 30,960 34,400 37,120 39,920 42,640 45,440 12,040 13,760 15,480 17,200 18,560 19,960 21,320 22,720 Gross income shall include: 1, Interest, wages, and other taxable earnings documented by the 1999 Federal Income Tax return and supporting W-2's. Workers' compensation payments. Child support received. Annual social security benefits (unless subject to tax and reported on tax returns) as documented on Form SSA-1 099, Earned Income Tax Credit. Pension Income, 2. 3. 4. 5. 6, If you were not required to file a Federal Tax form, verification of income must be submitted, Gross income must be reported on a household basis, Enclosed are the following documents which can be utilized to complete an application for financial assistance. 1, 2, 3, Application for financial assistance. Social Security verification request form. Proposed special assessment amount, Contact the City Engineering Division at 589-4270 to obtain further information relating to this financial assistance program, On or about (Mailing Date), you should also receive a mailing from the City Clerk relating to the remaining portion of your payment and due dates of any special assessment. DEPARTMENT: PROGRAM: PROJECT TITLE: PROGRAM: 3 TOTAL Public Works Facilities and Sewer Lateral Connection DEPTIACT: 55900 COST: Engineering Division Environment Assistance prorgram FD/CIP NO: 310-341 Annual Program EXP. PRIOR ESTIMATED BEYOND TO FYOO FYOO PROJECT BUDGET 2000-01 2001-02 2002-03 2003-04 2004-05 2005 A. EXPENDITURE ITEMS Design and Engineering Land and RO,w. $25,000 Construction $25,000 $25,000 $25,000 $25,000 $25,000 Other $25,000 TOTAL $25,000 $25,000 $25,000 $25,000 $25,000 B. PROJECT FINANCING $25000 Sanitary Sewer Constr Fd $25000 $25000 $25000 $25000 $25000 $25,000 TOTAL $25,000 $25,000 $25,000 $25,000 $25,000 PROJECT DESCRIPTION As of January 31, 1996, 129 residents within 200 feet of the City's sanitary sewer system were not connected, City Ordinance requires that all properties within 200 feet of public mains connect to sanitary sewer and City staff will be requiring these connections through a phased program over the next seven years. JUSTIFICATION The City Council has adopted a policy limiting homeowner financial participation for these private connections to the City main. This was due to the increasing concern of the affected property owners that the cost of these connections were causing a financial hardship. The City Council has set a limit of fifteen percent of the value of the property to be a reasonable participation for these property owners. This program will allow the City to compensate the owner up to an additional ten percent of the value of the property to assist in defraying these costs. RELATIONSHIP TO OTHER PROJECTS This project implements the Comprehensive Plan's Infrastructure Element: Goals 2,1 and 11.7; Environmental Quality Element: Goals 4.7 and 5.4; and City Fiscal Element: Goal 5.4. DEPARTMENT: PROGRAM: PROJECT TITLE: PROGRAM: 3 TOTAL Public Works Facilities and Sewer Connections - Assistance DEPT/ACT: 55901 COST: Engineering Division Environment to Low/Moderate Income Residents FD/CIP NO: 010-512 Annual for Connection Charges Program EXP, PRIOR ESTIMATED BEYOND TO FY 00 FYOO PROJECT BUDGET 2000-01 2001-02 2002-03 2003-04 2004-05 2005 A, EXPENDITURE ITEMS Design and Engineering Land and R.OW. Construction $25000 Other $25000 $25 OOp $25000 $25000 $25000 $25,000 TOTAL $25,000 $25,000 $25,000 $25,000 $25,000 B, PROJECT FINANCING $25000 General Fund $25000 $25000 $25000 $25000 $25000 $25,000 TOTAL $25,000 $25,000 $25,000 $25,000 $25,000 PROJECT DESCRIPTION The project provides additional assistance to low and moderate income residents who are required to hook-up to City sewer if their properties are within 200 feet of public mains. This program is in the second year of a seven year phase-in plan for implementation. JUSTIFICATION Although Community Development Block Grant funds provide approximately $10,000 per year for this type of assistance, the need is greater than available resources and sanitary sewer funding is recommended to augment the block grant program. RELATIONSHIP TO OTHER PROJECTS This project implements the Comprehensive Plan's Infrastructure Element: Goals 2.1 and 11.7; and Housing Element: Goals 4.1, 4.3, and 5.1.