Special Assessments Taskforce

Boards, Commissions & Committees

Special Assessments Taskforce - February 12, 2019 Minutes

Call to Order:
Commissioner Grindberg presiding.

Approve minutes from November 19, 2018 meeting:
Mr. Cosgriff moved the minutes from the November 19, 2018 meeting be approved. Second by Mr. Volk. There was unanimous approval.

Review of Prior Meeting “Main Points:”
Commissioner Grindberg said he felt having a full presentation on the Capital Improvement Plan (CIP) on this agenda would be too crowding so that will be included in another meeting. He reviewed the highlights of the six prior meetings. He said discussions included: economic effect of specials on homeowners and businesses; housing costs and affordability; fairness in defining benefits; notification; escalating costs; city infrastructure policy; options to pay for infrastructure; who benefits for refinancing of bonds; use of fund balances when bonds are paid; engineering fees; Century Code; municipal finance plan; competition; effect on housing prices; interest costs; appropriate terms; financial security for the city; bid strategies; LOMA costs; regional house prices and wages; homebuilding economic impact; presentation on Bismarck’s street maintenance fee; alternatives being considered in the Twin Cities; separating new development and reconstruction; Legislature’s impact and increasing utility fees as a replacement.

Commissioner Tony Gehrig Presentation:
Commissioner Gehrig shared a PowerPoint presentation on his proposal to use sales tax to fund infrastructure instead of special assessments. Currently, he said, for example, the Water Treatment Plant receives a portion of the sales tax for infrastructure, about $7M to fund operations, and ultimately $2M is retained for Water Treatment Plant needs and $5M is removed from the Utility accounts to supplement the City’s General Fund. He said the easy fix would be to stop doing that by not giving the $7M to the Water Treatment Plant and have it go directly to infrastructure, which would displace much of the need for special assessments. The Wastewater Treatment Plant does this as well, he said. That $2M deficit for the Water Treatment Plant last year could be raised by simply increasing utility rates to meet that standard, he said. For many years the goal has been to have the utilities fund themselves, he said. Fargo’s rates are dramatically lower than they should be because they are subsidized with sales tax. He said Fargo’s sewer rate right now is $16.00 flat while other cities are as high as $45.00, so it would be more in line with other cities by raising rates a small amount and special assessments could end. Property owners are being charged an extra percent and being told that is to protect from default; however, he said, he has not been shown one instance of anyone defaulting on special assessments. The City is taking that money and using it for other things, he said. His plan could raise about $15M per year to go for infrastructure and supplant the need for special assessments, he said. He said this would be for existing infrastructure, there would be no more special assessments on new developments. If a developer wants to build a road, etc., they can get a loan and do that, he stated.

Mr. Dabbert said he likes some of the proposal; however, his concern is keeping the playing field level for developers. In response to a question from Mr. Dabbert about whether properties, and projects such as 52nd and 64th avenues may require some kind of impact fee, Commissioner Gehrig said he is not saying to never again special assess if there is a project too big for his plan to sustain. Rather, he said, “special” assessing is for special instances, it is not “normal” assessing, which is how it is being used. He said if there is something very important that needs to be done, there are funds to tap into or the City can get loans for projects.

In response to a question from Mr. Hanson about when this would start and what happens with individuals who are now paying on specials, Commissioner Gehrig said there has to be a starting point for everything. He said unfortunately that is how those people funded their project. For new developments it is not a dramatic change, he said, a loan would be from a bank with a little higher interest rate. He said he understands property owners, like those on Broadway who just got special assessed a lot, will not like the idea. He said this will impact every resident and the vast majority will benefit.

In response to a question from Ms. Fremstad asking what the small increase in utility fees means, Commissioner Gehrig said it depends on what the City wants to do. He said if it is to fund the General Fund to the point it is today, it could be a $15.00 increase to the water bill and maybe an $18.00 increase to a sewer bill. With those increases in place, he said, Fargo rates would still be less than the vast majority of cities in North Dakota. He said the prospect of a retiree with no mortgage getting a $25,000.00 assessment will end; however, water could cost more per month. He said his plan is more sustainable and more predictable and he thinks people will appreciate that.

When asked by Mr. Dabbert if he would raise property taxes for the shortfall to the General Fund, Commissioner Gehrig said that revenue stream should go away and there are numerous ways to spend less.

Mr. Cosgriff said it is confusing to say that $7M of sales tax funds comes in and $5M gets transferred to the General Fund. Utilities operate on a transfer fee to cover operating costs incurred, he said

Mr. Goroski said, as he understands it, if the Water Plant takes in $50M hypothetically, and another $7M comes into the fund from sales tax, then up to 20% of the $57M can be moved to the General Fund, not the $7M that is taken in from sales tax.

Finance Director Kent Costin said the sales tax is dedicated to infrastructure, and the $7M cited in Commissioner Gehrig’s presentation goes right into a capital project fund which builds infrastructure for the related facilities. He said it does not go into the operations fund and is used for distribution systems, collector systems for sewer which is what the voters approved when the 1% infrastructure sales tax was approved. In Century Code, a city is allowed to take 20% transfers from the water utility and Fargo is at or near that, he said, and it has been part of the General Fund budget for years. He said the $7M does not go into the operational fund of the utilities, it goes into a capital project fund to build infrastructure on behalf of the utilities which is a subtle difference; however, he wanted to point that out. He said the 1% infrastructure sales tax was approved by voters for critical infrastructure – water, wastewater, streets and flood control. He said that has been running in commensurate “buckets” of 25% water, 25% wastewater, 25% streets and the remainder was obligated to the F-M Metro Flood Diversion project.

Commissioner Gehrig said, to be clear, the existing procedure for percentages that Mr. Costin refers to are how the City chooses to distribute them and could be different. He said it was not specifically voted to be distributed that way.

City Attorney Erik Johnson said the 1% sales tax began January 1, 2009 and runs through December 31, 2028. He said the Home Rule Charter says it is used for infrastructure capital improvements including streets, traffic management, water supply treatment needs, construction or expansion of water treatment facilities, water distribution system needs, sewage treatment collection system needs including construction or expansion of sewage facilities and flood protection projects. Commissioner Gehrig is right, he said, it does not indicate percentage distribution, that is a policy approved by the City Commission.

Mr. Dabbert said he attended an informational meeting about the 64th Avenue South project and there was spirited discussion on the funding. There is a cap for affected residents, he said, and in response to his question about where the difference between the funding by property owners and the City portion will come from, Construction Services Division Engineer Tom Knakmuhs said the funding sources for that are about one-third special assessments, one third federal funds and one third sales tax.

In response to a question from Mr. Cosgriff about how the cost for such a project would be made up under Commissioner Gehrig’s plan, Mr. Knakmuhs said that project is $30 million and funding is about $10 million federal aid, $10 million special assessed and $10 million City sales tax.

Commissioner Gehrig said that project is just one with income; the same thing is being done with the Wastewater Treatment Plant. He said sales tax tends to go up as a city grows. He said his plan would be able to cover that amount - if $15 million is taken in per year and $10 million is needed for a large project, there is $5 million left. Those large projects do not happen each year, he said, and maybe next year only $5 million is needed for projects, or $7 million, or $20 million, meaning there is a pot of money that will go up and down. He said just like anything else, the City has to budget, prioritize and distribute projects as in a CIP.

Mr. Volk said he is having difficulty following the math without a lot of numbers. He said this is such a small piece of the big picture, and much seems to be missing from this conversation that it makes it impossible for him to process where this may go. He wonders about the effect on property tax, on user fees, etc., he said, and there needs to be a bigger conversation on what are infrastructure needs and how they get paid. He said the $7 million in Commissioner Gehrig’s presentation is for a whole different purpose than the $5 million out, so it does not do justice to just assume that those two different things can all of a sudden be connected and it will all work fine. He said pieces are missing.

Commissioner Gehrig said this is a first glance of this plan and the beginning of a conversation, which is a major shift of what is being done. While he cannot give a specific number, he said, to raise fees by $30/month would make water/wastewater self-sustaining, beyond that, there needs to be a conversation about what else that fund should do. He said his plan is not complex, it is taking the infrastructure sales tax and use it for infrastructure instead of special assessments. He said he does not want to convolute his simple plan with a lot of nuances.

Commissioner Grindberg said this feeds into what is in the 3 or 5-year CIP plan, the sources and uses. He said that level of detail would give a more holistic view of the plan.

In response to a question from Mr. Dabbert about whether a project would need to cycle over multiple years, and where a $10 million shortfall for the 64th Avenue project would come from if not able to special assess individual property owners, Commissioner Gehrig said the City gets loans for infrastructure all the time and that is how a shortfall would be funded. He said a properly funded CIP would take care of the need. The $10 million being discussed would be funded from $15 million sales tax revenue and leave $5 million for other projects. On average, $13.5 million has been assessed over the last five years, he said. It varies, he said, one year was only $5 million and another was $20 million. Some years there are large projects that can be funded by a loan or planned long term in a CIP. He said he feels the voters for a sales tax on infrastructure would be surprised the funds end up in the General Fund and the way he is offering is a truer way.

Mr. Goroski said the $30/month additional on the two utilities fees could be $50/month and $5 million could still be put in the General Fund because that is allowed by Century Code.

Commissioner Gehrig said there is a ton of different options that could fill the void of not having this money flow through the water/wastewater plants and also fund the General Fund. What Bismarck suggested, he said, was a $20 streets fee.

In response to a question from Mr. Bullis about whether this would be phased in since there are taxpayers who have high specials to pay plus this would mean higher utility bills, Commissioner Gehrig said it could be phased. He said his plan is not set in stone, specials could be used for major things; however, he wants to get away from using it for roads and everyday things. Unfortunately, there has to be a begin and end date, he said, it is foolish to keep going down the road of a bad plan just because people got affected by a bad plan. Going forward, he said, this takes away the fear of a property owner getting a $20,000.00 assessment in their mailbox.

Commissioner Grindberg said in a new development, one pays for front footage for street, water and sewer then two years later is assessed for an arterial, then two years later a traffic light: it seems not to end. He said he struggles with funding sources and the utility fee. He said 30% of property owners do not have specials anymore and why should they pay more because their specials are paid for? He said if there were an additional source for utility for arterials and things for the outside benefit versus front footage then it makes some sense. He said he has trouble advancing the idea of everyone paying more fees when some have already paid theirs.

Mr. Bullis said he has an opposite take. Older homes with specials paid off may need to be charged a fee to start reserving money for a rebuild they will need later to not get a large special assessment bill. He said call it fees or taxes, it is just another way of financing by spreading costs over the entire city as opposed to the exact benefiting area. He said he is fearful of a system that instead of lowing the cost to taxpayers, it somehow gets raised.

Commissioner Gehrig said at his previous property he had about $1,700.00 in assessments and in interest alone, he paid about $15.00 or more/month because it was over 25 years. He said on an assessment of $10,000.00, the monthly interest payment alone would easily cover the cost of any utility increase.

Mr. Hanson said he does like the concept; however, there are unanswered questions. He said perhaps there could be a phase-in and one could get a credit if already paying specials. It is all math, he said, a credit could offset the utility fee. He said he feels the goal is to eliminate surprises, especially for the existing.

Mr. Dardis said he does not agree with Commissioner Gehrig’s math; however, sales tax revenues versus expenditures needs to be looked at and the City will do its best as far as planning. He said the public sees transfers as collecting more revenue than spent. There will not be $30 million projects every day, he said. While it is good this is focusing on the finances, he said, it is important to focus the end result of the public’s perception of what the City is doing to help them with these expenses.

Mr. Volk asked for a look back of 3, 4 or 5 years on how Commissioner Gehrig’s concept would affect what has been done in the past, such as what dollars would not have been collected to try to understand what it would look like in the future. He said the City spends operation money and infrastructure money and this discussion is on a little piece of the infrastructure. The total costs need to be looked at, he said, and this changes who pays, not on what money is spent. He said if expenditures are not reduced, nothing has changed except maybe who gets to pay for it. One reason he likes special assessments, he said, is that benefit to the property has to be demonstrated. He said now a property owner has a say in when their street gets repaired; however, if going with a flat rate who decide for everybody? Infrastructure in front of property that is in disrepair has a huge impact on the value of that property, he said, such as the value of a house if the asphalt or sewer is taken away. While there can be a disagreement on the value and benefit, he said, special assessments are one of the few things that really hones in on what is the benefitted value change and the law says more than the value increase cannot be charged. He said this could open up a quagmire of when what street needs to be fixed, at least now the process connects decision making to the homeowner. He said he would like a 5-year look back on how much money would have had to be collected with this plan inserted. He said the big picture, if money is taken from the General Fund for operations and less money is collected, something is not going to get done. It seems like a small piece is being taken from the puzzle, it is being massaged and put back in, he said, and that is not going to work, the need is to look at a bigger picture.

Commissioner Gehrig said, on average in the last five years, $13.5 million has been assessed. This plan would bring in between $14 million and $15 million per year, he said, and his plan took six months to develop and the information is there and he can share it. If he were to throw around a thousand numbers, it would be more confusing.

In response to a question from Commissioner Grindberg about whether it is possible to have a 5-year look back on sources and uses on infrastructure with special assessments tied to it, Finance Director Kent Costin said staff is certainly willing to do that. He said if the special assessment component is subtracted out, what is the amount? The hole will be replacement revenue, he said, which is not something his staff should be making decisions about. He said they can tell an amount based on the lookback period As far as trends, he said, spending levels have gone up a lot in the infrastructure bucket during the 10-year window, although tapering down somewhat the last 3 to 4 years. The ebbs and flows of the needs of the community are part of that look back, he said, and thought should be given to what it takes to run the City and the magnitude of the infrastructure needs.

Commissioner Grindberg said at the next meeting he would like to see an analysis of a five-year look back and then a 5-year CIP looking forward so there will be a historical view and a look into the future.

Mr. Dardis said simply pulling special assessments out would not give a clear picture because there are projects with state or federal funding. A further delineation may be needed.

City Engineer Brenda Derrig said multiple projects have special assessments such as arterials and alley constructions are 100% special assessed so what would the taskforce like taken out?

In response to a question from Mr. Goroski about how a number could be pulled like those neighbors of new developments that also get assessed, Ms. Derrig said if the look back were to get that specific, more time would be needed to look at each one of those.

Mr. Bullis said he is not familiar with cases where local improvements are assessed to neighbors, arterials are.

Ms. Derrig said Mr. Goroski is referring to Laverne’s Addition where new roads were built around them and that does not happen in residential areas where improvements are systematically installed.

Commissioner Gehrig said last year when his plan was discussed, he asked staff to remove new arterial roads and the alleys, so that would be a good starting point.

Mr. Goroski said the Engineering Department makes decisions today on what streets get redone, and he does not see that changing, they put the CIP together. He said as an individual property owner, he feels he has little say and a whole group of people could get together and fight it; however, they would have a low likelihood of changing it. He said if there is a good Capital Improvement Plan that moves forward and if the City tells someone who has his specials paid off that an arterial has to grow and they will get assessed, it will happen. Also, he said, he feels the Commission could fix things today with the $5 million transfer by changing the percentage formula.

Mr. Cosgriff said specials will not go away, systems have to replaced and repaired. He said if one has rural property and a septic system fails, they will write a check for $25,000.00 to fix it. He said the discussion started about specials and seems to have morphed into the whole City budget. Moving pieces of money around has policy affects beyond the scope of this taskforce. He said special assessments are one of the few taxes that attaches directly to a benefit, although there may be some disagreement on how that benefit attaches to the property. He said this will be paid for one way or another and Commissioner Gehrig’s proposal further removes the cost and the payment from the property owner. He said there needs to be discussion on what services would be cut back or what new revenue gets put in place.

In response to a question from Mr. Cosgriff about whether Commissioner Gehrig’s plan will throttle back and control development if funds are not available, Commissioner Gehrig said that is not the intention. He said he feels new development is not a government job; if one wants to build a house, a road and all the infrastructure that goes with it, after it is inspected the City can take control of it. It would be paid for by getting a loan, he said, not getting a loan from the government. He said new development would be completely off the table. As far as the assignment of benefit for special assessments, he said, people in the community do not like special assessments and are fed up with the extras on top of it.

Ms. Fleming said she would like to see arterials funded differently and more widespread, not just the direct properties.

Taskforce Survey Results:
Commissioner Grindberg distributed a copy of the Special Assessment Taskforce Survey results. He said PRIME46, a research division of Flint Communications, took feedback from taskforce members and put it into the instrument. He pointed out some of the results and rankings.

West Fargo Taskforce Update:
Mr. Dardis said West Fargo held five meetings in five locations on special assessments and in many cases heard property owners say to raise utility fees or taxes; however, do not continue these large assessments. A final report is coming and will be shared with this group, he said.

West Fargo Communications Director Melissa Richardson said she compiled the data from the City of West Fargo’s Community Forums. She said their goals were to provide resident education and provide an opportunity for feedback. Their online survey just closed yesterday, she said, and will be included in the final report. She pointed out a neutral response to a question on whether citizens would forgo infrastructure projects even if it means decreased services to avoid special assessments and two areas where they most want to redistribute funds is through having developers increase lot prices and look at the use of sales tax as being more fair. She said there was feedback that communication needs to improve, concerns on forecasting projects, managing costs, competitive bids, transparency, developers funding new infrastructure, use of sales tax and in general, is there a place where the city can save money. She said there are many implications to any changes made and they want to be sure their residents are aware of those. She said 152 people participated in the sessions and of those, 61 completed a survey. The online survey that just closed had 243 responses, she stated.

In response to a question from Commissioner Grindberg on whether any implications are expected at the end of the legislative session that would help from a state funding source perspective, Mr. Dardis said there have been discussions on that. He said there are a number of bills that could have an effect. He pointed out that in the summary and median scores of the surveys for West Fargo and data the Ms. Richard has is exactly like that scale that the Flint Group did for Fargo. He said their final report will show those percentages as well. He said their meetings showed citizens do not have a clear understanding of what is legal and what cannot be done according to North Dakota statute.

Legislative Update:
Commissioner Grindberg said he has heard a hesitancy from a legislator on writing a check to local subdivisions and never seeing an impact and he assured him that for Fargo it will be transparent and he would see how it reduced the burden on the taxpayer. He said it could have a profound effect on funding infrastructure.

City Administrator Bruce Grubb said he is observing special assessment legislation that could impact the work being done here. There are a number of bills related to special assessments and some indirectly related, he said.

Bills of interest to the taskforce are:
HB1307 – limit assessment benefits to not exceed the increased market value = defeated.
HB1488 – required annual review of special assessment revenue and limit collection = still in committee.
HB 1494 – related to Bank of ND loans to political subdivisions = defeated.
SB 2040 – related to special assessment districts and how political subdivision-owned property is treated when calculating protests = passed Senate and moved on to House.
HB 1066 – The Prairie Dog bill – establishes municipal funds for cities in non-oil producing counties for infrastructure only with a base amount and population, growth and valuation change factors –in House Appropriations Committee.
HB 1474 – give cities authority to levy an infrastructure tax in lieu of special assessments = still in committee.
SB 2275 – raise cap and change terms on Bank of ND infrastructure revolving loan fund
SB 2276 – requires Bank of ND and State investment board to collaborate on investment of some Legacy funds on infrastructure projects within the state.

Next Meeting:
Mr. Grindberg said the next meeting’s agenda items will include CIP and a look back and members will be polled to find the next meeting date, likely in March.

Mr. Bullis moved the meeting be adjourned. Second by Ms. Palm Connor. There was unanimous approval. The meeting adjourned at 8:47 a.m.

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