Special Assessments Taskforce - May 2, 2019

These minutes are subject to approval

Call to Order:
Commissioner Grindberg presiding.

Approve minutes from February 12, 2019 meeting:
Mr. Hanson moved the minutes from the February 12, 2019 meeting be approved. Second by Commissioner Gehrig. There was unanimous approval by all members present.

Commissioner Grindberg said he would like to hold two or three community forums in May and June, then schedule the next Task Force meeting sometime later in June. After receiving community comments, the Task Force should prepare a presentation for the City Commission in time for the budgeting process.

Capital Improvement Presentation:
Fargo City Engineer Brenda Derrig said the preliminary estimated total costs for CIP projects in 2019 in Fargo is $87,143,856.00, which does not include any water projects, street reconstruction or arterial roadway projects, which will start again next year. The CIP includes such projects as federal aid, flood control, pavement preservation, storm sewer utility, traffic and streetlights, new development, alley paving, sidewalks and miscellaneous, she said. A number of factors are considered when determining which projects should be part of the annual CIP, she said, including the Pavement Condition Index, water main break history, street light and traffic signal needs, flood control needs, as well as coordination with Public Works and Planning departments to determine which roads are most problematic and determining likely redevelopment and infrastructure needs to support it. She said federal aid projects typically come out of the Long Range Transportation Plan, which is completed every five years by MetroCOG and each municipality has to approve the plan. She said cities have to see into the future and decide where federal money should go. There has been a lot of discussion about arterial roadway projects, she said, and how a roadway gets arterial status. She said arterials are streets that people rely on to move throughout the City. The City and MetroCOG work with the ND Department of Transportation on the arterial designation, she said, and the NDDOT requires an official map of the City designating collectors and arterial streets. She said these streets are the only ones eligible for federal aid. As federal aid is distributed, she said, and when it is determined there is not enough federal money to support all arterial construction/reconstruction that is necessary due to City growth, roadway capacity reasons, work on infrastructure and or flood control, those projects are funded locally with special assessments and sales tax. She said looking back five years at CIPs that included everything, costs in 2015 were $141 million, $144.1 million in 2016, $121.5 million in 2017, $125.5 million in 2018 and $87.1 million in 2019. The CIP 5-year look back without new development, alleys and flood projects ranged from $52 million in 2015 to $59 million in 2019, she said. Taking a look back at special assessments not including local new development projects, she said, the average cost for reconstruction and rehabilitation projects over five years was $15.1 million, non-local new development projects totaled $13.5 million, alley paving costs were at $445,000.00 and the total amount special assessed was $29.1 million.

In response to a question from Mr. Volk asking what is the scale of the numbers against what amounts are special assessed, is it half as much or a quarter as much, Assistant City Engineer Tom Knakmuhs said it is varies and could be $8 million or it could be $20 million or $30 million.

In response to a question from Mr. Busek asking if the amount that is special assessed subject to the 50/50 split or the 70/30 split, Ms. Derrig said lift stations are 100 percent special assessed and with arterials, there is a cap. She said the CIP five-year look ahead without new development, alleys and flood projects, and including water and street construction/reconstruction, arterial, pavement, storm sewer, traffic signals, sidewalks and miscellaneous is $74 million in 2020, $67.9 million in 2021, $72.6 million in 2022 and $62.8 million in 2023.

In response to a question from Mr. Volk, asking if it is still too early to forecast how much of the work will be special assessed and how far out can the City start to see the picture, Mr. Knakmuhs said with reconstruction projects, a preliminary estimate is done, averages are looked at and the estimate is usually 25 percent special assessed, with the remaining costs paid from sewer utility, water utility and street sales tax funds. He said costs do change as the project becomes more defined.

In response to a question from Ms. Fremstad asking if there is a five-year look ahead to apply for federal funding for these projects, Mr. Knakmuhs said the City is programmed for federal funding through 2022 and what is allocated is known; however, until the project gets into design, they are high level numbers.

In response to a question from Ms. Fremstad asking if every arterial gets federal funding, Mr. Knakmuhs said some more localized arterials might not require federal aid.

In response to a question from Mayor Dardis, asking if any of the Prairie Dog dollars are involved in the current numbers, Mr. Knakmuhs said the Prairie Dog program is not currently in place so the current infrastructure funding policy was used to look ahead on cost splits.

In response to a question from Mr. Goroski, asking what years were on the 50/50 split and what years were on the 70/30 split, Mr. Knakmuhs said 2016, 2017 and 2018 would have been the former infrastructure funding policy. Part of the reason for a spike in some of these years, he said, is that is where the Hazard Mitigation Grant Program (HMGP) allowed the City to do more work. He said it did ultimately increase the amount special assessed as there was a portion not funded by the grant.

Commissioner Gehrig said the $15.1 million average is the amount that he is trying to replace with something other than special assessments. He said for homeowners in an established neighborhood where the City is redoing the road or a sewer main, the $15.1 million represents special assessments they are used to seeing. He said with the Prairie Dog Fund, the City is expecting to bring in more than $13 million a year and that is when oil is at $40.00 a barrel. He said the Prairie Dog fund can replace special assessments for the average person and if the City wants to go further and wants more dollars, utility fees can be added.
In response to a question from Mr. Goroski about the amounts and the years that were 50/50 versus the years that were 70/30, Mr. Knakmuhs said the numbers were compiled based on the policy at the time and when the City reverted back to 70/30, those numbers would have been brought down; however, at the time of the approved CIP, that was the amount to be special assessed as part of those street reconditioning and rehabilitation projects. He said there still would still be the shortfall due to the fact that the City reverted back to the earlier policy.

In response to a question from Mr. Goroski, asking where were the funds were coming from before if the City was spending that amount of money, Mr. Knakmuhs said the funds were from special assessments. He said when the special assessment policy changed, City funds had to increase and therefore there was a shortfall of about $15 million, which is the reason there are no water main replacement projects this year.

In response to a statement from Mr. Goroski regarding design driving costs and with streetlights in particular, where there used to be one streetlight for every two blocks and now there is one for every two houses, Ms. Derrig said she cannot exactly address the streetlight question; however, when the City is evaluating and replacing streetlights, engineers look at luminaires and current standards. She said in regards to road design, and especially in new developments, the Engineering goes through corridor studies and decides what size and what type of road is needed, then asks the City Commission how to proceed with anticipated growth.

In response to a question from Mr. Goroski asking about the average road life of 63 years and how many streets in Fargo actually make it that long, Mr. Knakmuhs said 63 years is an average when asphalt and concrete roads are combined and it depends on typical maintenance and pavement preservation projects throughout the life of the road. He said the numbers were conservative and the City hopes to get many years out of roads. An arterial road is going to make it 30 to 35 years, he said, which is typical. He said there are local concrete roads in Fargo that are 80 years old and in very poor condition. With an asphalt road, the City is happy to see a 50-year life with regular maintenance such as mill and overlay and sealcoat. With concrete or asphalt, it is all about pavement preservation, he said.

In response to a question from Mr. Worth asking what happens when a street that gets torn up for some other reason, yet has several years of usability left, Mr. Knakmuhs said many roads were paved or overlayed in a time when the assessment policy was 25 years; unfortunately, sometimes those roads are not going to make it the full 25 years, maybe they will make it 18 years, therefore Public Works could go in and do an overlay to hopefully buy an additional seven years. In other cases, he said, such as Broadway, there was a mill and overlay project on North Broadway, then the force main project came up with the HMGP. He said it was a prime project, so the City credited back the balance of the remaining special assessments for that period.

Legislative Update:
Fargo City Administrator Bruce Grubb said the Legislative session has ended and some bills were approved that may impact the work of the Special Assessments Task Force. He said House Bill (HB) 1066, also known as the Prairie Dog bill, is a municipal infrastructure fund made possible from a portion of oil- and gas-production tax revenues. He said the funds will be given to non-oil cities, including Fargo and West Fargo, to pay for essential infrastructure such as water, sanitary sewer, storm sewer, streets and other projects. A formula in the bill will determine the amount each city receives, he said, including a base amount based on population, a per person amount, a population growth factor and a valuation change factor. He said this is a difference-maker for Fargo and it is exciting. The bill has been approved by the House and Senate and signed by the governor and the first time funds will be available is October 2020, he said.

In response to a question from Commissioner Grindberg asking about cap amounts, Mr. Grubb said it does not matter if oil is $40.00 or $60.00 a barrel, the amount each city receives will be consistent.

Mr. Grubb said HB 1307 would have limited the special assessment benefit applied to a property not to exceed the special benefit, which is the increase in market value, but it did not make it out of the House. HB 1474, he said, would have given cities the ability to levy an infrastructure property tax in lieu of special assessments; however, that bill required a public vote and a super majority, so the bill was changed to a study. HB 1488 would have required an annual review of annual special assessments, he said, and if revenues were sufficient to pay off bonds, no collection of additional special assessments would be allowed, and that bill passed in the House but failed in the Senate. Senate Bill (SB) 2020 is a statewide funding bill for water projects, he said, and included funding for the FM Diversion and Red River Valley Water Supply Project and was approved by the House and the Senate. SB 2040 was related to special assessment districts and how property owned by a political subdivision, such as Fargo, cannot be included in the protest calculation, he said, unless protesting the very district trying to be established within that district and that bill was approved by the House and Senate. SB 2275 replaces the Bank of North Dakota revolving loan fund, he said, and increases the loan amount from $15 million to $25 million per entity for 30 years at 2 percent interest and included a provision for flood control, water supply and water management projects and that bill passed the Senate but not the House.

Taskforce Voting Member Consensus:
Mr. Volk said the consensus of the Task Force is specials need to continue but better communication is needed. He said it is also clear that the City has to use specials in some fashion for infrastructure because infrastructure development should not be minimized. He said what is less clear are the details to move forward. If we want to preserve specials, he said, we need to figure out what is a reasonable special assessment. He said he keeps hearing that specials are too high, but what is the number that makes it too high? What is reasonable, he asked. The Task Force can come forward with recommendations; however, what are some things that can move the needle up and down? Can the Task Force do some things to reduce costs, he asked. The Task Force should not be thinking about coming up with alternative funding schemes, he said; however, if the system changes, then what is the funding source? Increased utility fees, sales tax and other revenue streams, he asked. That was not this group’s task, he said, and it is more of how to manage specials. He said the Task Force needs to come up with some recommendations to make special assessments more palatable and he is not comfortable telling the City it should increase fees. He said the Task Force also has to identify what will not be paid for if there are no special assessments.

Mr. Goroski said the Task Force survey does not include what the public wants. He said in Mayor Dardis’ summary for West Fargo the consensus from the public is to get rid of specials. He said one of the options has to be to eliminate specials. He said he does not know how to get there; however, the Prairie Dog fund could match the $15 million easily.

Mr. Hanson said the process is confusing at best. For those who have owned their homes for many years, he said, what is the best option for those on fixed incomes and what is that amount? For customers he works with, he said, $10.00 or $15.00 is too much. He said three or four options are needed, better transparency, separate new from existing and some type of utility fee. He said specials cannot go away; someone has to pay for infrastructure. He said another option for existing homeowners is how can the City create a plan so homeowners know what their bill is going to be so there are no shocks or surprises. New development is different, he said, because a homeowner in a new development understands when they make that decision, they have to pay the specials.

Mr. Cosgriff said people do not like specials because they do not understand what they are tied to. If specials go away, he said, people will have to live with potholes and water main breaks. He said the discussion should be about priorities and quality and those things cost money. If specials go away, he said, infrastructure will be paid for with sales tax, income tax or a whatever tax and this Task Force has not done anything other than shuffling.

Mr. Goroski said the streets are used by people from out of town who come to Fargo for tournaments, concerts, etc., and they especially use the arterials and connectors. By converting to an all sales tax base, the City could pick up more of the infrastructure costs. He said Fargo is already doing this but should do more.

Mr. Cosgriff said the reason he likes specials is directly show benefit to a property. He said the City cannot special assess something that does not benefit the underlying property. He said a sales tax is good; however, infrastructure has to be paid for and this Task Force does not want to get into finance options because that leads to deferred maintenance and that leads to big problems in the future.

Mr. Hanson said the Task Force has to come up with two or three options and having community feedback will help with the decision.

In response to a question from Mr. Busek asking why green field development is special assessed and the developer is not paying for it, Mr. Cosgriff said in the cities where a developer pays for green field infrastructure, when the infrastructure wears out, there has to be specials for repairs. As an analogy, he said, he has rural property and if his well breaks down, he has to pay to repair it; he does not go back to the company that installed the well 20 years ago. Whether or not the city pays for green fields, he said, there are still going to be special assessments. He said if there are no special assessments, there will have be higher sales taxes or some other tax to raise those funds.

Special Assessments Coordinator Dan Eberhardt said cities in Minnesota and South Dakota and other states use impact fees; however, sometimes impact fees do not cover the costs. He said most states have some type of special assessment for reconstruction.

Mr. Volk said special assessments are working here; however, it needs to work better. He said Fargo has a lot of things figured out that other metros do not and he hopes the dial is not turned so hard and fast that it messes it up. No tax is fair, he said, but collectively we have to take care of the community, infrastructure is critical and if you let the roads go, it affects the price of your house. He said infrastructure drives the economy and to take a funding source off the table, as unfair as it all is, how else can it work. He said it has become too easy to throw aspects of projects on specials and that is something to discuss.

Mr. Goroski said the original intent of specials was to use them for certain instances, when additional funding was needed. He said he does not propose taking specials off the table; however, specials should be used only under special circumstances. He said daily operation should be set up so the City does not have to use special assessments. He said the cost/benefit analysis with specials does not match, especially if a house is worth $150,000.00 and it gets a $25,000.00 special assessment bill or more.

Mr. Eberhardt said the cost benefit analysis is the City’s policy and his department applies it. He said the benefit is to the lot, not what is on the lot, what is not on the lot or the value of the lot.

Ms. Palm Connor said if streets, sewer lines and water lines are not replaced, value is taken from properties. She said Realtors look at infrastructure work when doing market analysis.

Mr. Hanson said to fund infrastructure, the Task Force should look at it like homeowners insurance where everyone pays fees and creates a pool of funds to fix homes. He do we create a funding mechanism, especially for those on fixed incomes, he asked, and how do we get rid of the surprises so people know what they are going to pay and how it works in their budget.

Mr. Goroski said the Task Force and the City are here to serve the public; therefore, the public’s opinion is needed.

Mr. Volk said the Task Force needs to make decisions; however, this group has to decide what is right and the biggest problem is we do not know how to educate the public on the whys and hows of special assessments.

Mr. Knakmuhs asked what is an acceptable amount? For example, he said, at property owner meetings prior to construction of a project last year north of I-94 and east of Nativity Church, residents said special assessments were acceptable at $10,000.00 to $12,000.00 for new roads, new sewer lines and new water lines; however, $25,000.00 to $30,000.00 was not. He said many people were very vocal and that is why the City Commission reversed to the 2013 policy. He said the City does hear complaints about arterials; however, not many complain about a $2,000.00 assessment for 25 years and most people see it as a benefit. He said it is very complicated and the City tries to educate residents.

Mr. Goroski said according to his math, a $10,000.00 assessment spread out over 25 years is about $33 a month.

Ms. Palm Connor said the biggest issue is costs, which have gone up exponentially. Competition drives costs down, she said, and when talking about affordable housing, she said there is no affordable housing in Fargo for first-time homebuyers.

Mr. Volk said costs went up dramatically when the Bakken boomed due to the fact that many of the contractors moved west. He said the economy has changed the nature of bidding in the last few years and it will change again; those factors cannot be controlled. He said in today’s market, the City should be building due to the fact that many people need work. The City has to be prepared to deal with market conditions, he said, and make decisions to take advantage of the economic factors. The cost of money is down and competition is up, he said; therefore, it is less expensive to build now.

Commissioner Grindberg said the Task Force needs to move forward, not backwards, and there was great discussion today about many of the topics on the survey. He suggests the Task Force move forward with the data it has and determine how to put that information into a presentation format and use what is available under the law. He said it does not make any sense to promote an option restricted by North Dakota Century Code. We need citizen involvement, he said, and ultimately we need recommendations for the City Commission. He said that will be another set of debates in order to make substantive change.

Mr. Goroski said the City should not be doing any green field development.

Mr. Cosgriff said developers already have the option to not use special assessments. He said special assessments for green field development came to be when Fargo was a smaller, growing community. To put sewer, sidewalks and streets in place required large outlays of money and not many developers had the capability. He said if green field is removed from special assessments, the number of developers will be reduced that have the capital necessary to develop raw land and there might be an unexpected blow back. He said as long as developers have that option, if using the city method is too expensive there is nothing preventing them from going into the private markets.

Mr. Volk said what should be special assessed in green fields is critical infrastructure only due to the fact that the City owns it in the end. There are some things a developer should be paying for, he said, and the list of what can be special assessed is a lot longer today.

Mr. Dardis said the City of West Fargo has allowed special assessment policies to become broader and amenities such as security fences and upgraded lighting are being special assessed, not just critical infrastructure and that is adding to the lot cost. He said there are no policies that says those items cannot be included. He said West Fargo’s special assessment forums were held with City staff, who gave designated presentations and there was also an educational process. He said the study analysis differentiated between in person and online results in order to gauge the effectiveness of the educational process. He said the public’s perception of special assessments are surprising. He said specials are determined sometimes by the lineal foot and sometimes by the square foot depending on the shape of the lot and the public does not have an understanding of that. About 150 people attended the various meetings, he said, and there was also online engagement. He said the discussions today are parallel with the West Fargo research data, where many residents said they would rather pay higher taxes than special assessments. He said his knowledge of special assessments has increased because of these events and discussions. From the amenities versus critical standpoint, he said, developers are competing against each other and what they are offering and the question is should the City get involved in that competition and my answer is the City should not.

Ms. Fremstad said she would recommend an educational element to the public forums.

Fargo Mayor Tim Mahoney said there has been tremendous building in Fargo over the last five years and valuations are up 12 percent to 14 percent. He said the City has seen bidding come down and it is more competitive. He said the task of this committee is to come up with the answers. The Prairie Dog bill is a gift from the Legislature, he said, and perhaps the recommendation could be going from the 70/30 split to an 80/20 split.

Public comment:
Tim Stallman, Fargo, gave the following statement: “I lived in Jefferson City, Missouri for 28 years in an older neighborhood and never, not once, paid a special assessment. It can be done. Why wasn't this Task Force more focused on completely eliminating special assessments? I think I know the answer: powerful business entities in this town make their living on special assessments. Special assessments have become too easy for city government to inflict upon taxpayers, and I use the word inflict correctly. Something needs to be done with this system. Fargo needs to do what other cities have done. Instead of special assessments, other cities use property taxes, sales taxes and other methods. Special assessments are unfair to senior citizens and need to be completely eliminated or at least find a way to cut them in half. If property taxes instead of special assessments are used, the public will pay much more attention to the whole matter. If you cannot eliminate special assessments, at least figure out a way to cut them in half or a 90/10 split system. I would be personally be willing to pay $20.00 maybe $30.00 a month to keep the City away from my nursing home money.”

Next steps:
Commissioner Grindberg said he will get information to the group regarding community public forums and education. He said the next Task Force meeting will be sometime in June to finalize recommendations and produce a report.

Mr. Hanson moved to adjourn. Second by Mr. Goroski. There was unanimous approval by all members present.

Time at adjournment was 9:08 a.m.