Memorandum 14-115 Land Purchase for Water Storage Tank

Memorandum 14-115

TO:                      Walt Wrede – City Manager

FROM:                Carey Meyer – Public Works Director

DATE:                 July 22, 2014

SUBJECT:         Land Purchase –  Proposed Water Tank

The City Council authorized the acceptance of an EPA grant, Ordinance 12-40(S), which provided design funds for various water system improvements. One of these improvements is a new water tank, recommended in the Water/Sewer Master Plan, to provide more depend-able fire flows to the core area of the City and a more redundant  distribution system for the areas below the bluff.

After contacting several property owners in the general vicinity of the proposed tank location (near the Shellfish Ave./South Slope Dr. intersection), Public Works has determined that one particular property was best suited for the new water tank. The site needs to be at a particular elevation and as close as possible to the pressure zone below the tank, to create the proper pressures on the system and minimize construction costs. The property is shown on the attached map. The property is unique, in that it best serves the needs of the project.

The property owner is a willing seller (assuming the price is fair).  To establish a fair value for the property, Public Works has looked at the KPB tax assessment values of vacant property in the area. Based on KPB tax assessment values, similar property in the area (immediately across the street) is assessed at $1.08 - $1.09 per square foot. The proposed 1.497 acre lot would then be valued at approximately $72,000. Although the Borough maintains that their tax assessment values reflect market value, our experience in the past is that they were low (up to 25%). Currently, they may be closer to market value.

The value established by the appraisal is $45,000. The appraiser acknowledges that due to the lack of recent raw land sales comparable to the proposed property, the value he can place on the property is lower than what he could have established in the past.

The proposed location of the tank site is part of a larger parcel, the lot for the tank needs to be created by subdividing the larger parcel. This means that there is no KPB land value for tax purposes established for the lot.  Public Works has received preliminary plat approval from both the Homer Advisory Planning Commission and the KPB Platting Committee to create the new lot.

Homer City Code requires that property sold by the City be appraised and that property cannot be sold for less than the appraised value. There is no requirement that the price of property purchased by the City be limited by the appraised value.

Based on the review of  potential sites for the tank, the subject property is best suited for a new water tank because:

The lot is at the correct elevation.
Owners of other potential lots are not willing to sell.
Building the tank on other lots would increase the cost of the project.

Based on the evaluation of the value of the lot proposed to be purchased for the new tank, Public Works concludes that the fair value of the property is $72,000 because:

It is consistent with the KPB assessed value for tax purposes.
The lot has unique characteristics from the perspective of this project.
The price is higher than the current appraised value (raw land sales appear to be very slow), but lower than what the property might have appraised for a few years ago.
The proposed purchase price reflects the value that the new water storage tank has to the entire community and all of the water system customers.

The property owners initially wanted more than $72,000 for the property. Comparable raw land sales from a few years ago would indicate the property was worth $85,000 to $90,000.

Attached is a draft purchase agreement (reviewed by the City Attorney) that offers to purchase the property for $72,000. The owners are evaluating whether to accept the offer. The City Manager has the authority to sign the purchase agreement, Council approval would be appropriate, due to the special nature of the expenditure.

Recommendations:

The City Council pass a resolution authorizing the City Manager to sign the attached purchase agreement (purchase price $72,000); and pass an Ordinance authorizing the expenditure of $80,000 from the Homer Accelerated Water/Sewer Program (HAWSP) for the purchase of the proposed lot for a new water tank (including purchase price and closing costs).

Fiscal Note: 205-375 (HAWSP Account)