City of Alexandria, Virginia
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MEMORANDUM
DATE: MAY 8, 2013
TO: THE HONORABLE MAYOR AND MEMBERS OF CITY COUNCIL
FROM: RASHAD M. YOUNG, CITY MANAGER /s/
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Introduction and First Reading. Consideration. Passage on First Reading of an Ordinance to Amend the Sewer Connection Fee.
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ISSUE: Council Consideration of an ordinance amending City Code Sections 5-6-25.1 regarding sewer connection fees.
RECOMMENDATION: That City Council pass the proposed ordinance (Attachment 1) on first reading and schedule it for public hearing, second reading and final passage on Saturday May 18, 2013. The proposed ordinance would modify the language of City Code Section 5-6-25.1 as follows:
- Increase the multi-family residential connection fee from 50% to 90% of the single-family fee as of September 1, 2013,
- Establish a connection fee category for hotel uses, and set the hotel connection fee at 70% of the single family fee as of September 1, 2013, and 90% of the single family connection fee as of July 1, 2014.
- Provide for credit to be given when an existing sewer connection is removed and replaced with a new connection,
- Provide for collection of connection fees when an existing structure changes use or otherwise significantly increases its water usage,
- Establish that the connection fees will be adjusted to the current fee if an extension is required for a site plan, and
- Establish that future changes to the connection fees based on the local Consumer Price Index for Urban Consumers (CPI-U) will occur on July 1 of each year.
DISCUSSION: The Sanitary Sewer Master Plan (the Master Plan) was adopted by City Council on February 23, 2013. The Master Plan provides the City with a long-term plan to address future wastewater flows, identify when and where infrastructure upgrades or improvements will be needed to accommodate growth, and continue to serve the wastewater needs of residents and businesses. The Master Plan outlines the capital needs and costs to accommodate future growth and development, which have been incorporated into the FY 2014 to FY 2023 Capital Improvement Program (CIP). A Sanitary Sewer Financial Model was developed based on the philosophy that the growth-related capacity needs should be funded by the developer-paid sewer connection fees while the existing system needs will be funded by the ongoing user fees paid by customers.
As adopted by Council, the Master Plan includes recommendations for modifying aspects of the sanitary sewer connection fees. Specifically, the adopted Master Plan recommends that:
- The fee for multi-family residential development projects be increased from 50% to 90% of the single-family connection fee.
- A teardown credit of 50% be applied for existing structures that will be removed and replaced.
Council also asked staff to bring back a recommendation for a separate connection fee category for hotel uses and an implementation timeline for the new fees. At the same time it is necessary to address in the proposed ordinance implementation issues such as site plans that expire or require an extension and projects that change use or significantly increase the water usage for an existing structure.
Multi-Family Connection Fee Increase:
Water consumption records in Alexandria indicate that a multi-family dwelling uses 87% of the water that a single-family dwelling uses. Additionally, a survey of surrounding jurisdictions revealed that the multi-family fee was typically 80% to 100% of the single-family connection fee. Staff had recommended in the Master Plan that the multi-family connection fee be increased from 50% to 90% of the single family fee, and that the increase be phased in over two years (70% in FY 2014 and 90% in FY 2015). Staff recommended a two-year phase-in to allow projects which are very near construction not to see such a substantial increase at a time when the development of financing and project economics is more likely to have been finalized or close to finalization. Staff also recommended that the increase in the multi-family fee be implemented for projects with their first final site plan submitted after April 1, 2013.
At the adoption of the Master Plan, Council revised the recommendation to increase the multi-family connection fee to 90% of the single family fee entirely in FY 2014, rather than over the previously proposed two-year period. Council also asked staff to study the timing of implementation of this change. This is discussed in more detail below. The change in the multi-family connection fee is included in Section 5-6-25.1(a)(2) of Attachment 1.
Teardown Credits:
Currently, when a development project consists of tearing down an existing structure and building a new structure, the developer does not receive a credit for the prior investment made into the sanitary sewer system. The Master Plan recommends a teardown credit of 50% of the previous use, recognizing that the costs associated with wastewater treatment and maintaining sewer infrastructure have increased. This teardown credit provision is included in Section 5-6-25.1(a)(6) of Attachment 1. The credit shall only apply to properties for which the structure is in place or was removed no longer than three years prior to the submission of the final site plan. A teardown credit is common among local jurisdictions in the Washington, D.C. area. Staff recommends that this credit be implemented at the same time as the increase in the multi-family connection fee.
Hotels:
Hotels are currently treated as multi-family dwellings (1 room = 1 dwelling) with respect to the connection fees. No additional connection fees are assessed for other uses within a hotel such as restaurants or meeting/event facilities. Staff evaluated information from several hotels located in the City and estimated sewer flows based on the sewer flow factors presented in the Virginia Department of Environmental Quality's Sewage Collection and Treatment Regulations, which include flows for hotel rooms, meeting facilities and restaurants. The results indicate that hotels are estimated to use, on a per room basis, an average of 84 percent of the water that a residential household uses.
Staff also examined water usage data for the same hotels and found that these hotels (per room) use, on an annual average basis, 79 percent of the water a single-family dwelling uses. The usage varies throughout the year and by season based on occupancy. The highest usage was typically in the late spring through mid-summer, representing the highest occupancy. During the quarter with the highest water consumption, hotels used about 110 percent of the water (per room) that a single-family household used.
Staff recommends a hotel connection fee rate (per room) of 90% of the single-family rate be phased in with no additional connection fees for other onsite facilities. With this fee, hotels will continue to be charged the same fee as multi-family residential projects; however staff recommends that hotels be identified as a separate use in the code. A two-year phase-in for the increase in hotel connection fees is proposed with the hotel connection fee increasing to 70% of the single family rate as of September 1, 2013 and to 90% as of July 1, 2014. Connection fees for hotels are presented in Section 5-6-25.1(a)(3) of Attachment 1.
In comparison with the economics of multi-family development, hotel development is a much more difficult process to achieve successfully, as hotel occupancy rates and room rates are much more volatile and hotel development occurs with far less frequency. From a tax revenue point of view, hotels as a real property type represent the highest generator of taxes to the City in comparison to other property types. Hence, the City's sewer connection fee implementation should not be a barrier to development of hotels where appropriate in the City. Creating a two- step phase in will not create a barrier to hotel development for the two hotel development proposals which are active.
Change in Use:
The existing City Code does not address cases where an existing structure changes its use (such as a commercial structure being converted to residential units) or increased water consumption from the same use (such as by adding more units). Proposed changes to Section 5-6-25.1(a)(7) of Attachment 1 require the payment of connection fees for changes in use. As recommended, if the same sewer tap is utilized, the fee shall be based on the net increase in units (or increase in water meter size). If a new connection to the sanitary sewer is required, the fee shall be based on the total number of proposed units (or water meter size) and applicable teardown credits from the existing use shall be applied.
Implementation Timeline:
The current code establishes the connection fee for a given project based on the submission date of the final site plan. Annual increases in fees tied to the local CPI-U have been applied to final site plans submitted after April 1 of each year. During the approval of the Master Plan, Council asked staff to evaluate the proposed fee increases and determine if an alternative implementation timeline was appropriate. Staff's original recommendation was to increase the multi-family connection fee to 70% in FY 2014 and to 90% in FY 2015. After reviewing the development activity and planning in the pipeline, and taking Council's prior interest in accelerating implementation into consideration, it is now proposed that multi-family connection fee be increased to 90% as of September 1, 2013 (FY 2014). For hotels, as stated above, it is proposed that the increase be phased in at 70% as of September 1, 2013 and then to 90% as of July 1, 2014 (FY2015).
Staff recognizes that developers calculate all potential fees, including sewer connection fees, into the financial analysis of projects early in the development process, and that fee increases applied after the DSP/DSUP approval may be challenging. Staff has been discussing the likelihood of sewer connection fee increase with the development community during the development of the Sanitary Sewer Master Plan over the last year, communicating the practice of applying fee increases to final site plans submitted after April 1. Based on the impact to revenue associated with exempting projects with DSP/DSUP approval, but also recognizing the large fiscal impact to projects that are nearing construction, staff also considered delaying the date of implementation beyond April 1, 2013.
In reviewing the plans with existing DSP/DSUP approvals, three projects are nearing construction and are anticipated to have final site plans submitted by the end of this summer. The remaining projects have not indicated that they are currently active and are not expected to submit plans this calendar year. In recognition of the advanced state of financing of these three projects, staff recommends shifting the implementation date for the fee increase to apply to projects with a final site plan submitted after September 1, 2013. This implementation date will result in $3.6 million in additional sewer connection fee revenue, over the existing fee structure.
Staff further recommends that the teardown credits also apply to projects with a final site plan submitted after September 1, 2013.
The current code provides that the connection fees are increased by the annual rate of inflation as determined by the CPI-U for the Washington, DC-MD-VA-WVA Combined Statistical Area. This increase has been applied to final site plans submitted after April 1 of each year. Staff is recommending that future CPI-U increases apply to final site plans submitted after July 1 of each year. This will bring the CPI-U increase in line with other fee increases throughout the City.
Site Plan Extensions:
The existing City Code does not address instances where a developer files for a DSP/DSUP extension after the final site plan has been submitted and the connection fee established. It is recommended that, for DSP/DSUP extensions, the connection fees are updated to reflect the fees at the time the extension is approved. For projects that have submitted a final site plan prior to April 1, 2013, it is recommended that one extension may be granted without changing the connection fees. This is proposed in Section 5-6-25.1(a)(8) of Attachment 1. It is not anticipated that this will impact a large number of development projects. Most requests for extensions apply to projects that have not yet submitted a final site plan.
Recent Outreach:
City staff presented the proposed connection fee changes at the monthly NAIOP/NVBIA meeting on April 9th. In addition, the proposed changes were shared with land-use attorneys representing hotel and multi-family residential projects in the City and with the Alexandria Hotel Association. The primary concern shared with staff was applying the increased fee to projects with an approved DSP/DSUP. The representatives expressed that the increase, applied at this point in the process, could create a hardship for some projects. In addition, some representatives expressed a belief that hotel projects should be charged a lower fee than multi-family projects, based on the water consumption analysis.
FISCAL IMPACT: The connection fees for all uses will be adjusted by the CPI-U effective for all final site plans submitted on or after July 1, 2013. The connection fees for multi-family and hotel uses will be increased to 90 percent of the single-family connection fee for all final site plans submitted on or after September 1, 2013. Implementing the multi-family connection fee increase to 90% of the single-family connection fee in FY 2014, and the hotel connection fee increase to 70% of the single family connection fee in FY 2014 and to 90% in FY 2015 will result in conservatively at least $5 million of additional revenue over the 10-year period. The acceleration of the implementation proposed in this memorandum in comparison to the original February proposal is projected to generate an additional $0.6 million. All of these revenues will be applied to sanitary sewer capacity capital projects.
ATTACHMENTS:
Attachment 1: Ordinance Cover
Attachment 2: Proposed Ordinance
Attachment 3: PowerPoint Presentation
STAFF:
Mark Jinks, Deputy City Manager
Richard J. Baier, Director, Transportation and Environmental Services
Jerome Fletcher, Special Assistant to the City Manager
Christopher Spera, Deputy City Attorney
Emily A. Baker, City Engineer, Transportation and Environmental Services
Maurice Daly, Division Chief, Transportation and Environmental Services
Erin Bevis-Carver, Civil Engineer III, Transportation and Environmental Services
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